Credit Building across Sectors. Assets Learning Conference September 17, 2014

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Lambert Goodwin
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1 Credit Building across Sectors Assets Learning Conference September 17, 2014

2 Justine PETERSEN Building Assets, Changing Lives Since 1997: One-on-one credit building with over 25,000 individuals, Assisted 4,300 to purchase homes with safe, affordable mortgages, Originated $17 Million thru 2,800 micro-loans, Wholly-owns Community Development Financial Institution, Great Rivers Community Capital Originated $12M in consumer, housing and micro-enterprise loans

3 Target Population Low- to moderate-income African-American Median credit score 575 Thin File Less than two active lines Under $5K in collection debt

4 Consumer Finance Products Micro-Enterprise Loan Started in 2001 Up to $50,000 Interest rate % Up to 72 month term Credit Building Loan $ loan month term 18-37% APR (about $30) Developed 2006 Secured Credit Card Pair revolving Partnered with Citi to expand in 2008 LISC Twin Account 2012 Partnership with LISC $300 loan Interest Rate depends on state (6-12%) All Consumer Finance Products require counseling

5 Why Credit Matters Budget Implications LISC Financial Opportunity Centers Based on Annie E. Casey Foundation s Center for Working Families model 1) Employment Services 2) Income Support Services 3) Financial Services All 3 Core Services Affect the Budget / Bottom Line LISC Twin Accounts & Financial Opportunity Centers Assets Learning Conference September 17, 2014

6 LISC Performance Measures Data Sources: Budget (baseline, subsequent) Balance Sheet (baseline, subsequent) Credit Report (baseline, subsequent) KEY Findings: LISC Key Indicators: Increase in Net Income Increase in Net Worth Increase in Credit Score 46% have no FICO score at all (with collections / without collections 70% of unscored with minimal collections Debt reductions for unscored - paying off collections (still no score The Good News Elasticity in the Credit Score Algorithm Four key lessons of credit building (distinct from credit repair ) Have to get a product (loan or credit card) that reports to the credit bureaus Have to pay on time every month If product is a credit card, have to use it every month If product is a credit card, have to use no more than 30% of credit limit

7 LISC Twin Accounts Twin Accounts Criteria: 1. Must be receiving financial counseling 2. Must have sufficient monthly net income to cover the loan payment (budget) 3. No delinquencies or collections occurring 3 months prior to product initiation (credit report) 4. No credit cards with balances over 30% of the credit limit (credit report) Twin Accounts Guidelines: Participant opens $300 credit builder loan at Justine Petersen (from the FOC office) Justine Peterson deposits loan proceeds into a locked savings account Participant makes 12 monthly payments of $25 Justine Petersen (JP) reports each payment to the credit bureaus LISC matches each payment as long as it get to JP on time (no match, if payment is late) At the end of 12-month loan term Participant has up to $600 ($300 savings + $300 match) + improved credit Participant uses $300 in match (and/or savings) to open secured credit card LISC rewards good management of secured credit card (for first 12 months of card) Participant earns $25 for each monthly billing statement that shows Participant used the card at least one time that month Participant ended the billing term with a balance of 30% or less than credit limit Participant paid the last bill on time (starting 2 nd month)

8 COMMUNITY 26 NONPROFITS 9 STATES & D.C.

9 LENDING CIRCLES

10 GROWTH $6,000 $5,000 $4,000 $3,000 Active Loans Cost Per Loan 1,097 1,800 1,613 $2,000 $1,000 $ PILOT REPLICATE SCALE

11 Why build credit? More than half (56%)of U.S. consumers have low credit scores, ranging from (2014 Assets and Opportunity Scorecard). People with low or no credit scores may pay $200,000 more over a lifetime for financial products and services than those with good scores(liz Weston). The average credit score of a Millennial in 2013 was at the tipping point between higher cost and more affordable credit products (Experian National Score Index). - source: The Power of Credit Building, Asset Funders Network. The Aspen Institute 11

12 Credit Building vs. Credit Repair The Aspen Institute 12

13 How to build credit The Aspen Institute 13

14 Financial Capability Financial Education Knowledge gains To Financial Capability Longer-term behavior change If financial literacy is what you know, financial capability is what you do. ~CFSI

16 Populations Entrepreneurs Un- and under-employed workers People with no credit score Immigrants The Aspen Institute 16

17 Products Secured credit card Credit-building loans Peer loans Credit coaching and financial education The Aspen Institute 17

18 Outcomes Hard data Stories Successes and failures The Aspen Institute 18

19 Scale Who Target markets with potential. How programs, platforms, products, strategies? Opportunities for action. The Aspen Institute 19

20 IMPACT 168 AVERAGE POINT INCREASE TO CREDIT SCORE 90% SUCCESS RATE AT ESTABLISHIN G CREDIT SCORES $1,051 REDUCTION IN HIGH COST DEBT $2.9M IN TOTAL LOAN VOLUME

21 Results: Twin Accounts initiated since 2010: 393 (177 currently open) 85% completed (or are on track to complete) the 12-month loan 63% have made ALL of their payments on time 22% late at least one time Average number of late payments: % of all participants who owed a payment in July paid ON TIME What s possible: Client #1 Credit Report: Last open account /13 No FICO 10/13 Enrolls in TA 3/ FICO 11/14 Will open Secured Credit Card Why it matters: 11/12 No FICO 6/ FICO 3/ FICO Client #2 Credit Report: Blank 12/12 Enrolls in TA 2/13 Opens Credit Card 10/13 Credit Card Delinquent 1X Gets Car 28%

22 ABC Pilot: Profile of Cardholders 385 received the card 42% pre-business 57% female/43% male 45% Latino/29% AA Primarily urban-based Small households Avg./Median HH income: $31,393/$26,000

23 ABC Pilot: Score Changes at 12 months All Pilot Participants with Score Data at 12 months N=223 Among those with no scores at intake, 92% had a score at 12 mos.

24 ABC Pilot: Score Changes at 12 months Clients with existing score at intake (all) Clients with existing score at intake (increased scores only) Mean Median N % of existing scores increased

25 ABC Pilot: Scores at 12 months Mean Median N No score at intake Existing score at intake (all) Existing score at intake (increased scores only) Average baseline FICO score was 584

26 ABC Pilot: Movement from Subprime

27 ABC Pilot: Linking Back to Behaviors

28 ABC Pilot: Indicators 30 days late payments Low card balances (<30%) Debt- to- Income ratio

29 ABC Pilot: Financial Behaviors with Card

30 Client Success Story Mr. S Incarcerated Outcome Unable to obtain job 574 credit score No Established Credit October 2011 JP Interventions: Financial Coaching & Education Secured Credit Card $1,400 micro-loan Passed state exams to obtain Master level license in Plumbing Able to obtain City & County permits to install water heaters

31 Client Success Story Mr. S 2012 Establishing credit by paying Micro- Loan and secured credit card on-time Dispute errors on credit report 2013 Step-Up Micro-Loan $6,700 to purchase equipment, tools & insurance 2014 Business is growing Credit Score is 703

Jobs are not enough. LISC National: Financial Opportunity Centers (LISC Chicago: Centers for Working Families)

Jobs are not enough. LISC National: Financial Opportunity Centers (LISC Chicago: Centers for Working Families) Jobs are not enough * Resident input during Quality-of-Life Physical Planning sessions in Chicago, 2002-2004 LISC National: Financial Opportunity Centers (LISC Chicago: Centers for Working Families) Financial