supersize that ida: how enhancing your programs with credit building can achieve even greater...
TRANSCRIPT
Supersize that IDA: How enhancing your programs with credit building can achieve
even greater impacts
Establishing and maintaining ACTIVE (paying on time & regularly)
trade lines that are
reported by creditors to the major credit bureaus.
STRONG CREDIT HISTORY
What is Credit Building?
Opening and successfully managing financial products is key
to building and maintaining a good credit history.
Credit Building: The Key and The Catch 22
64 million U.S. consumers have no or thin credit history
26 million (1 in 10) are credit invisible
19 million (8%) have unscored credit records
Consumers in low-income neighborhoods• Almost 30% are credit invisible • 15% have records that are unscored
Black and Hispanic consumers • About 15% are credit invisibles compared to 9% of
White consumers. • 13% of Black consumers and 12% of Hispanic
consumers have unscorable records compared to 7% of White consumers.
• Analysis suggests that these differences across racial and ethnic groups materialize early adulthood and persist.
Credit Profile Realities
CBA’s Credit Building Community in Oregon
Implementing Credit Building Initiatives: Lenders
Report existing financial (loan) products Design new financial products Identify complementary external financial
products
Credit Building Products can serve many different people and purposes.
Every monthly payment reinforces positive financial habits!
Implementing Credit Building Initiatives: Non-Lenders
Reactivate/rehabilitate existing credit lines
Create referral relationships with financial institutions
Partner with nonprofit and/or other responsible lenders that offer Credit Builder products
Create and offer your own Credit Builder products!
Implementing Credit Building Initiatives: Lenders & Non Lenders
Determine Mission Fit
Define Target Market & Need
Identify/
Create Product
Establish Financial Education
Requirements/Support
Assess Organizational
Capacity
Assess Community Partnerships/ Create
Relationships
Identify Loan Capital & Risk
Tolerance
Scan Regulatory Environment
Identify a Graduation Product
Sign up to Report through CBA!!!
Implementing Credit Building Initiatives: Threshold Considerations
Vanilla Credit BuilderLoan Characteristics
Installment loan with 0% interest
100% secured, loan disbursed after 12 monthly payments
Choose your loan amount
$150 loan with 12 monthly payments of $12.50 (individuals only, no couples)
$300 loan with $25 payments for 12 months
$600 loan with 12 monthly payments of $50
Automatic enrollment in autopay from your bank account
– Payment due dates 5th or 20th
Vanilla Credit BuilderLoan Characteristics, cont.
We report your on-time monthly payments to the three credit bureaus
Non-refundable $25 application processing fee due with application ($35 for dual applicants)
$25 loan processing fee ($35 for dual applicants)
• Average score improvement:
– 677 if you start with no score
– Gain 42 points if you start with a score
Credit stretches your IDA Dollars
$200,000 Mortgage over 30 years
Credit Score
620-640 760
Interest Rate
5.6% 4%
Monthly Payment
$1,148 $955
Total Interest Paid
$213,280 $143,800
A strong score saves $69,480!
All kinds of dollars are stretched
$8,000 Car Loan over 60 Months
Credit Score
609 700
Interest Rate
12.99% 2.49%
Monthly Payment
$182 $142
Total Interest Paid
$2918 $516
A strong score improves cash flow and savings!
Look who else cares about credit
Good credit increases access and options!
From self directed to nudged
CB loans
Since 2010
350+ borrowers
IDAs
Since 2013
130+ savers
13
Promoting the good behaviors
time discount and present bias
Value of frequent feedback Status quo bias
Promoting the good behaviors
Social norms and self concept
Betrayal aversion
Consistency and self image
CB with IDA Pilot
CASA of Oregon – IDA Fiduciary Organization
Credit Builders Alliance – National network, training, consulting and reporting
Hacienda CDC – Homeownership IDA
Innovative Changes-IDA and Lender
Neighborhood Partnership-IDA Initiative
NE Oregon Economic Devt District – SB IDA
Pairing CB with IDA
IDA Awareness
• sign up for orientation
• learn about Credit building opportunity
IDA orientation
• Pre application
• 2 months bank statements
• stability plan
• Monthly budget
Credit building orientation
• Just after the IDA orientation
• Details of CB loan
• CB application
Submit IDA pre application andCB application
• Same supporting docs
• One staff contact point
Approved to apply for an IDA
• Receive and submit the FO application
• Proof of income
If not approved
for IDA, they
can still be
approved for a
CB Loan
Make it as seamless as possible
Group IDA enrollment
• Sign saving plan
• Pay IDA application fee
• Staff submit FO app to FO
Group CB closing, right after IDA enrollment
• Sign loan docs
• Pay CB loan application fee
• Sign saving plan amendment
• Get credit report&score
• Get credit action plan
• Schedule individual coaching
Month 0
• FO sends bank letter
• Saver opens bank account
• Saver makes 1st deposit of IDA savings and loan payment
• Saver sends bank account number to lender
Make it as seamless as possible
Month 0: Loan disbursal
• Lender deposits loan proceeds into the IDA account
• Loan funds are safeguarded by the FO, it can not be withdrawn
• It secures the loan payments
• Client receives invoice for loan payment month 1
Month 1: Ln payments begin
• Lender ACHs loan payment
• Lender books loan payment loan management system
• Lender invoices borrower for next payment
• Borrower makes deposit number #2, IDA savings and loan payment
Monthly loan payments and reporting continue for set period of time
• Lender reports payment to credit bureaus at start of month 2 and each month after
• CB loan is set to mature when IDA matures
• Can end loan early if early exit
Make it as seamless as possible
Last month of loan
• Borrower makes final deposit of IDA savings and loan payment
• Lender ACHs final monthly loan payment and final processing fee.
• Lender informs FO to release the loan proceeds to the borrower.
Last month plus one
• Lender reports final month loan payment and paid in full (PIF).
• Borrower can access the loan proceeds.
For the next seven years that loan and all its great on time performance stays on the borrower’s credit report.
If needed,
borrower can
take out
another CB
loan, vanilla
flavored.
Loan termsLoan
term in
months
Number
of Credit
Check-Ins
Loan
Amount
Application
fee
Monthly
payment
Processing
fee
Amount you
receive at the
end
6 2 60 50 10 0 60
12 3 144 25 12 25 119
18 3 180 25 10 25 155
24 4 240 25 10 50 190
30 4 300 25 10 50 250
36 5 360 25 10 75 285
Application fee pays part of the cost to set up the loan, pull the first credit report and provide first credit session.
Processing fee pays part of the cost of processing the loan payments, reporting the loan payments, pulling subsequent credit reports and provider subsequent credit reviews and unlimited coaching. It reflects the increased expenses for longer loan terms.
Credit Reviews and Coaching
Loan term
in months
1st credit
score, action
plan &
coaching
Credit
score,
written
review
Credit score,
written
review
Credit score,
written
review
Credit score,
written
review
6 Month 0 Month 6 ////////// ///////// /////////
12 Month 0 Month 6 Month 12 ///////// /////////
18 Month 0 Month 6 Month 12 Month 18 /////////
24 Month 0 Month 6 Month 12 Month 24 /////////
30 Month 0 Month 6 Month 12 Month 30 /////////
36 Month 0 Month 6 Month 18 Month 24 Month 36
Free individual coaching is always available.
Lessons learned
• Patience and good communication
• Coordinate document collection
• Funding levels
• Systems and scale
• It’s early yet, we have more to learn
Lessons learned
• New funds for new classes, such as credit building with IDAs in April 2016
• Evaluation report of this pilot will be available in May or June 2016
• Stand alone credit building through partnerships
