www.creditbuildersalliance.org [email protected]© 2013 credit builders alliance, inc....

www.creditbuildersalliance.org [email protected] © 2013 Credit Builders Alliance, Inc. Some rights reserved.

© 2013 Credit Builders Alliance, Inc. Some rights reserved. CREDIT BUILDERS ALLIANCE and the accompanying Logo are trademarks of Credit Builders Alliance, Inc.

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Credit Builders Alliance ("CBA"), a not-for-profit organization, makes this information available for informational purposes only. This information is not intended as legal, financial, or other advice, and you and your clients should consult qualified advisors before making any decisions. CBA does not represent that any of the information will produce results.

Credit as an AssetDate

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9:00 – 9:30 Welcome and Introductions Who is Credit Builders Alliance

9:30 – 10:30 Why Credit Building? The Changing Credit Industry10:30 – 10:45 Break10:45 – 12:30 CBA’s Credit Builder 5-Step©

Step 1: Consider the Goal12:30 – 1:00 Lunch 1:00 – 2:15 Step 2: Know the Score 2:15 - 2:30 Break 2:30 – 3:30 Step 3: Get the Good Stuff Going 3:30 – 3:45 Break 3:45 – 4:45 Step 4: Deal with Debt

Step 5: Leverage Success 4:45 – 5:00 Recap & Post-training survey

Draft Training Agenda


Credit is an Asset

This training was made possible throughthe generous support of

Annie E. Casey Foundation, a private charitable organization, dedicated to helping build better

futures for disadvantaged children in the United States.

We thank them for their support and acknowledge that the material presented in this webinar are those of CBA’s alone and do

not necessarily reflect the opinions of the Foundation.


Welcome!

ICEBREAKER: Tell us about yourself and what you hope to

gain from this training.

1A2

Introduction:First Impressions


What this training OFFERS

• An introduction to CBA’s Credit Building philosophy and the credit building field

• An overview of key concepts and strategies to maximize credit building success for youth

• An exploration of tools and resources to develop/ enhance the integration of credit building strategies into supportive efforts with youth

• An opportunity to share with and learn from others


What this training DOES NOT OFFER

• Extensive training on credit coaching, credit counseling, or debt management for youth

• Training on identity theft or fraud

Check out the additional resources in your folders for lots of helpful resources that we

may not cover in detail in this training!


Who is ?

1A3



To create innovative solutions for asset building organizations helping low- and modest income households build credit and

financial access.

Good Credit is an Asset

Mission driven nonprofits and other entities are uniquely positioned to help the households they serve build credit as an

asset – often the FOUNDATIONAL asset.

Introduction:CBA Mission & Philosophy


Credit Builder

Community Members

Network & Increase Visibility

(Credit Building Community

Report & Pull Reports

(Credit Building Platform)

Innovate & Engage with

Field(Credit Building

Hot Topics)

Build Capacity &

Sustainability (Credit Building

Toolkit)

CBA members share with and learn from each other

Connect to the credit bureaus through our one-of-a-kind umbrella arrangements

Updates on relevant innovations, products, services, activity, and best practices in the field

Provide valuable technical

assistance, training, and

consulting

Introduction:CBA’s One-Stop-Shop


Introduction:CBA Credit Builder Community


Introduction:Definitions

A CREDIT HISTORY is a record of transactions involving the use of credit. If you do not have a credit history you will not have a credit reportA CREDIT REPORT is a record of a consumer’s credit history. A CREDIT SCORE is number that summarizes your credit risk. It is used by lenders to assess the odds that you will become delinquent in repaying your debt within the next two years, and is based on a snapshot of your credit report at a particular point in time.

.

780

513657

824456

GOOD CREDIT


What is credit and why is it important for youth?

ACTIVITY

?!@


Credo: CRED o (kreed’ o) v. trust

Credit: CRED it (kred’ it) n. value; worth



Why Credit Building?


Myth or Fact: Your credit SCORE may impact the following… Myth Fact

…the rate you’re offered on a car loan Myth Fact

…the rate you’re offered on a government student loan Myth Fact

…the monthly cost of car insurance Myth Fact

…whether you will get offered a particular job Myth Fact

…the amount of your utility bills Myth Fact

…the rate you’re offered on a mortgage Myth Fact

…whether you have to leave a deposit with your utility company Myth Fact

…whether a bank will let you open a checking account Myth Fact

…whether your will be able to rent an apartment Myth Fact

…the rate you’re offered on a private student loan Myth Fact

Why Credit Building?Myths and Facts


Paid in Full each month =

30 day 0% loan

400%+ APR; cycle of debt

Without access, assets & savings you cannot achieve or maintain financial stability or security

Why Credit Building?Two Tiered System


The average Credit Score of a Millennial in 2013 was 628, positioning them at the tipping point between higher cost and more affordable credit products.

Why Credit Building?Youth


Good Credit = ACCESS

Why Credit Building?Credit Matters

Where we live

How we store & manage our money

How we get around

What and how much we pay for credit

The cost of household/ personal needs & wants


$10,000 auto loan, 5 year term

Score Interest Rate Monthly Payment

500 17% $249.00

620 11% $217.00

720 3% $182.00

Potential Savings each month = $67

over 5 years = $4,020

Source: www.myfico.com


Good Credit = SAVINGS


Home-ownershipSmall BusinessesHigher Education

Good Credit = ASSETS



In many states, credit history can still affect employment opportunities


Good Credit = OPPORTUNITY


Youth with no, “thin” or poor traditional credit histories have few opportunities to build good credit

Why Credit Building?BUT….


• How is Credit an Asset for youth?

Peer Learning


BREAK!


The Changing

Credit Industry


Youth as Consumers

Lenders & Other

Businesses

Credit Reporting Agencies

Risk Score Modelers

The Government

Consumer Reporting AgenciesThe Players

SOURCE: Experian

Highly competitive but…data submission uniformity – Metro2 files sent electronically

Models designed differently based on consumer files

Rulemaking & enforcement authority historically fractured

Voluntarily submit data – still regional inconsistencies


Fair Credit Reporting Act

• Credit bureaus responsible for integrity and accuracy of data in databases

• Consumers have right to see & dispute information and receive verified response within 30 days

• Data providers need to report fully and consistently and verify data upon dispute

Credit Reporting TodayA Regulated Industry


Today’s CreditUnintended Consequences: Consumers


Consumer Finance Protection Bureau• Makes and enforces rules

• Credit Bureaus• Creditors

• Empowers consumers to take more control over their economic lives

• Division for Consumer Education & Engagement• Know Before You Owe initiatives

Credit Reporting TodayCFPB: A Game Changer?


Why Credit Building?Defining Credit Building

We Know Good Credit is an Asset…

…how can we help our clients build it?


First, what exactly is Credit

Building?

Q:

What is Credit Building?What?


Credit Repair = fixing negative history

Credit Counseling = dealing with current crisis

Credit Building = creating opportunities for the future

A:

What is Credit Building?What?


How do you build credit?

Q:

What is Credit Building?How?


ON-TIME payments REPORTED to a credit bureau

EVERY monthBUILDS credit

=ACTIVE TRADE LINES

A:



WHAT IS AN ACTIVE TRADE LINE?• An Active Installment (loan):

Has a Balance Has a monthly payment Is not closed

• An Active Revolving (credit card): Doesn’t need to have balance or payment A payment has been made in the past 6 months

(date of last activity)



What is Credit Building?More on Active lines…

• A collection/charge-off can never be an active line of credit

• An open line of credit is not the same thing as an active line of credit

• Just because it doesn’t say closed/paid doesn’t mean it’s active

• A loan paid off is no longer active• A student loan in deferment is not active, but

has the potential to be active


3 ACTIVE trade lines MIX of installment and revolving 6 months

What is Credit Building?Best Practice


The CBA Credit Builder 5-Step©An Action Plan Framework for working with youth to build credit



CBA Credit-Builder 5-Step©

Consider the Goal

Know the Score

Get the Good Stuff Going

Deal with Debt

Leverage Success


CBA Credit-Builder 5-Step©Step 1: Consider the Goal

• Help youth articulate Specific, Measurable, Achievable, Realistic & Time-bound (SMART) goals

• Connect the importance of good credit to these goals.


Consider the GoalACTIVITY

Help Youth identify 1-3 SMART goals

In groups discuss these goals, how credit building is important to achieving these goals, and what steps the youth can take to achieve these goals.


Peer Learning

Share your clients’ goals


LUNCH!


Consider the Goal

Know the Score


Deal with Debt

Leverage Success

CBA Credit-Builder 5-Step©Step 2: Know the Score


• Review your clients’ credit reports to determine their readiness for credit building.

• Do they have a credit report? Any debt or accounts in collections? Have they experienced any Identity Theft or fraud?

CBA Credit-Builder 5-Step©Step 2: Know the Score


MYTH OR FACT? Myth Fact

There is nothing you can do once a collection agency begins to call you other than pay back your debt. Myth Fact

If you pay all your monthly bills on time, you will have a high credit score. Myth Fact

If you only have Collection Accounts on your credit report, you may not have a score. Myth Fact

You can ruin your credit by applying for a few new lines of credit (making inquiries). Myth Fact

It is possible to go from “unscored” to a score of 699 in 6 months if you have one reported loan you pay on time each month. Myth Fact

A single delinquency can reduce your score by 45 to 125 points. Myth Fact

Your credit score will jump up when you pay off a collection account. Myth Fact

Credit cards can be excellent vehicles for building credit. Myth Fact

Know the ScoreCredit Quiz


Know the ScoreWhat we know

But, there are 1000s of

Scores?!?!



Why so many scores? Q:

A:Lenders use different scores designed to measure risk for different types of lending -- including mortgage, auto, and personal finance loans.



Non-lenders may also use credit scores calculated for other purposes:

Insurance companies may use credit scores not only to predict the likelihood of payment, but also to assess a consumer’s risk of being in an accident and/or filing a complaint;

Hospitals may use scores to assess capacity to pay medical expenses and debt;

Telecoms companies may review scores to determine whether or not to require a consumer to make a down payment in order to establish an account;

Landlords may use scores to determine whether or not a consumer qualifies for rental housing; and

Banks may use scores to determine an applicant’s eligibility for a checking or savings account.

A:


Know the ScoreWhat is “Good”?

Range FICO Score Meaning…

Subprime (Poor/Low) Under 620 No access or unfavorable rates &

terms

Prime (Fair/Good) 620 - 780 Reasonable or good rates & terms

Super Prime (Excellent) 780+ Better or best rates & terms


Traditional FICO: 300 - 850

Know the ScoreFair Isaac – Still King

10%10%

15%

30%

35%

Types of CreditNew Credit

Length of Credit HistoryAmount Owed

Payment History


VantageScore 3.0: 300 - 850

Know the ScoreVantage Score – and the runner up is…

Consumer Behavior Advice… Impact on Score…

Payment History Pay all bills on-time Extremely Influential

Age & Type of Credit Maintain a mix of accounts Highly Influential

% of Credit Limit Used Keep revolving balances under 30% Highly Influential

Total Balances/Debt Reduce the amount of debt you owe Moderately Influential

Recent Credit Behavior Don't open too many accounts too quickly High Risk; usually no credit offers

Available Credit Only open the amount of credit you need Moderately Influential


Know the ScoreScore Impact

Current FICO score 680 780

Score after one of these is added to credit report: Score Drop Score Drop

Maxing out a credit card 650-670 10-30 735-755 25-45

A 30-day delinquency 600-620 60-100 670-690 90-110

Settling a credit card debt 615-635 45-65 655-675 105-125

Foreclosure 575-595 85-105 620-640 140-160

Bankruptcy 530-550 130-150 540-560 220-240


Know the ScoreBest Practice

Pay on-time Maintain 3 active trade lines

Have a mix of credit

Keep balances low Don’t close old accounts in good

standing Inquire judiciously


Scores are important

but…



Know the ScoreScores are Important But…

…focus on the trend upwards, the range, and the underlying behavior


Know the ScoreAnd Report!

Personal Identifying Information• Name• Address• Social Security

Number• Date of Birth

Credit History• Open trade lines• Active trade lines• Derogatory items

such as accounts in collections

Public Records• Bankruptcies• Foreclosures• Judgments• Liens

Inquiries• List of creditors

and other authorized parties that have requested and received a copy of the credit report in the last 24 months

Know the Report! A credit report typically contains:


• IndefinitelyOpen Accounts in Good Standing

• 10yrs from date of closureClosed Accounts in Good Standing

• 7yrs from date of 1st delinquencyLate or missed payments

• 7yrs from date of charge offCharge Off/Collections

• 10 (Ch. 7) or 7 (Ch. 13) yrs from date of entry for reliefBankruptcy

• 7yrs from date of entry Civil Judgment

• 7yrsForeclosure

• 7 yrs from paid date or no limit if unpaidTax Liens

• 2yrsInquiries

Know the ScoreStatute of Limitation


There is not just one!

Like scores, credit reports are customized by different data sellers for the needs of different businesses and for consumers.

Know the ScoreAbout Reports

Did you know…


Know the ScoreConsumer Disclosure Reports

Advantages of Consumer Disclosure Reports: 1. Easy to read.2. Include information about the "Date of

First Delinquency," or the date that negative information will "age-off" of a report.

3. List the names of original creditors if an account has been sold to one or more collection agencies, which provides a pathway to disputing errors.

4. Include instructions on how to dispute errors.

5. Allow consumers to monitor and manage their own credit reports.

Challenges with Consumer Disclosure Reports1. Each CRA displays the information they

have linked to a consumer’s identifying information. If the information entered to request the report varies, then the information in the report may vary. Only the information that is included in that report will be scored.

2. May be difficult to access online due to security questions that may use complicated wording or be confusing, which can make it difficult for consumers to answer required identification information.


Know the ScoreBusiness Division Reports

Advantages of Business Division Reports1. Reports may be pulled for consumers

without Social Security Numbers or who may not be able to answer the security questions required to access a report online through annualcreditreport.com.

2. Scores may be pulled along with reports for significantly less than the cost of purchasing a score through annualcreditreport.com.

3. Reports may be pulled multiple times a year as long as they are pulled for permissible purposes.

4. Reports may be pulled in batches for greater efficiency.

Challenges with Business Division Reports1. Information may look different than it does

on a Consumer disclosure report, may be harder to interpret, and may not include important details for disputes like the names of original creditors.

2. CRA contracts have specific covenants about how authorized pullers may and may not share report information or scores with consumers.

3. Numerous codes listed throughout the reports may be confusing.

4. Some information, such as medical debt, may not be clearly marked as such.

5. The names of original creditors may not be provided, making it harder to contact creditors directly related to disputes.


ACTIVITY


Peer Learning

Share your thoughts on the credit report assessment tool.

How useful is it?

Can you imagine using it with youth?


BREAK!


Consider the Goal

Know the Score


Deal with Debt

Leverage Success



CBA Credit-Builder 5-Step©Step 3: Get the Good Stuff Going

Credit Building…• Empowers individuals to make and

maintain positive behavior changes

• Connects youth to responsible financial institutions and products that support savings, credit, and budgeting needs


There are many ways your families can to damage or repair credit, but

There is only ONE way to BUILD CREDIT!

Get the Good Stuff GoingRemember…


HOW?ON-TIME payments

REPORTED to a credit bureau EVERY monthBUILDS credit

Get the Good Stuff GoingRemember…


What needs to be on the Credit Report?

No Credit

Open Credit

Active Credit

Get the Good Stuff Going:Asset Based Approach to Credit Building


Just AddProduct!

Get the Good Stuff GoingJust Add Product!


Every monthly payment is a teachable moment!

Education

Product

Get the Good Stuff GoingFinancial Capability


Get the Good Stuff GoingProduct Models of Success

Credit Builder Products can serve many different people and purposes.


Get the Good Stuff Going:Ways to “provide” credit builder products

Create referral relationships with financial institutions

Partner with responsible lenders to offer new products

Offer & report your own products!


Accessible to your job seekers

Flexible & Affordable

Potential for graduation

Get the Good Stuff GoingA Good Product…

BUILDS CREDIT!

Get the Good Stuff GoingWhat to Look for in a Good Product


Full-File Alternative Credit Data Reporting Q:

A:What is it?

Positive and negative utility, telecoms, and rental payment data reported

Get the Good Stuff GoingThe Alternative Future?


Reporting utility & telecoms payment data enables 40% of previously unscoreable consumers access to prime credit, including:

• Increasing access by 15% for youthhttp://perc.net/content/

alternative-data-initiative-adi

Get the Good Stuff GoingThe Alternative Future?


Problem: Unlike homeowners, renters do not build credit by making their monthly housing payments.

The Future of Credit Reporting Power of Rent Reporting Pilot

Solution: Reporting rental payments offers low-income renters an opportunity to build credit as a financial asset: Mission-driven affordable housing organizations are poised to help them do so.

Goal: To catalyze rent reporting as a valuable and viable option for low-income renters to build credit and financial capability.


Affordable Housing Organization

Renter

Landlord/ Property Manager

Rent Payment Processor

The Future of Credit Reporting Power of Rent Reporting Pilot


Youth are entitled to a lifetime of good credit and credit options:

• By offering access to safe financial products to youth who cannot access conventional credit, you are meeting one of their CURRENT needs. By ensuring that the creditors report payments, you are helping them with their CURRENT needs and their FUTURE needs.

Get the Good Stuff GoingCredit Building Matters


Just Add Product!

ACTIVITY


Get the Good Stuff GoingPeer Learning

• How does the product(s) fulfill a youth’s needs?

• What are the anticipated challenges of this/these products that have not been resolved?

• What might you need to work on to help ensure the youth is successful?

• How does this leverage resources/ relationships in the community?


BREAK!


Consider the Goal

Know the Score


Deal with Debt

Leverage Success



• Help youth identify the best way to pay down existing debt and which to tackle first

• Assess accounts in collections. Which ones may fall off their report soon (make sure they understand debt collection rules and their rights in your state). Can they negotiate lump sum

settlements?

CBA Credit-Builder 5-Step©Step 4: Deal with Debt


Deal with DebtThings to Remember

Debt management ALONE is not a Credit Building strategy


Is there debt on the credit report that they do not recognize?

Help youth understand the information on the report and dispute errors:• With the credit bureaus• Directly with the creditor

Deal with DebtTake Action: Disputes

“One in four consumers identified errors on their credit reports that might affect their credit scores”

Deal with DebtTake Action: Disputes


Youth may need to navigate competing priorities when making decisions about paying off debt including:

• Get anything that’s delinquent back on track before it goes to collections

• Decrease revolving credit utilization rate• Pay off highest interest rate• Pay off smallest balances

Deal with DebtTake Action: Pay Down Debt

Goal: no more than 30% credit utilization on open debt

Deal with DebtTake Action: Pay Down Debt


• Collections have most significant negative impact on a score when first reported … then they age.

• Removing a collection account (i.e. medical collection) will improve the score! If it is not theirs – dispute it!

• Paying off a collection account still leaves negative account info on report until it ages off (do not confuse with state debt collection statute of limitations)

• Paying off a collection account can have a NEGATIVE impact if it makes Date of Last Activity more recent. Settle rather than create payment plans if possible.

• Collection activity and collection agents cannot update the Date of First Delinquency!

Deal with Debt:Take Action: Collections 101


Deal with Debt:Debt Management Companies

• Can’t legally do anything you can do for free

• Can’t legally collect fee before delivering the promised service

• Can’t legally advise you to lie about your accounts or about your identifying information


Deal with Debt

ACTIVITY


Deal with DebtPeer Learning

• What are the youth’s goals?

• How can we encourage/support youth to manage debt wisely?


Consider the Goal

Know the Score


Deal with Debt

Leverage Success



CBA Credit-Builder 5-Step©Leverage Success

• Help youth leverage improved credit in order to achieve ACCESS, build ASSETS, and increase SAVINGS!


Tracking credit outcomes can help:

Empower youth

Catch problems early & course correct if necessary

Identify new opportunities & threats

Effectively communicate impact

Leverage SuccessTracking Outcomes


Can you answer these questions?:

How much? = outputs

How well? = outcomes

What difference did it make? = impact



NEFE Impact Hierarchy

Financial behavior change can be measured by

indicators found on a youth’s credit report


How well

What difference?


• On-time payments = positive financial behavior• Active trade lines with mainstream financial institutions

= financial inclusion • Debt to Credit Ratio / Debt reduction = financial

stability• Types of credit products = asset building• # Inquiries = financial need

Tracking OutcomesSelecting Indicators

Behavior Change Indicators


The most impactful measurement used by mainstream financial institutions to offer them mainstream credit.

Tracking OutcomesSelecting Indicators

Using Credit Score to Track Client Progress


Tracking Outcomes:Selecting Indicators

Using Credit Score to Track Client ProgressConsiderations• Which score are you using? • Proprietary concerns with sharing

score data (consult your legal advisor)

• Tracking score change based on score at intake and in subgroups


Tracking Outcomes:Selecting Indicators

Using Credit Score to Track Client ProgressDownsides of using credit score as sole measure of success:

• Score change isn’t always accurate measure of consumer creditworthiness

• Increased credit score doesn’t mean participants will or understand how to use traditional credit products


The Process

Define the purpose and focus of your

outcome tracking

Define program

objectives & select

indicators

Develop a plan covering data

collection, management,

use, and communication

Share and Celebrate

Youth Success!



Leverage Success

ACTIVITY

Established credit history and improved scores

Access to affordable financial products, housing, and employment opportunities

Increased savings and financial stability


RECAPCBA Credit is an Asset Training

• Credit is ubiquitous

• Think about it as an asset to build and not just a barrier

• Focus on underlying consumer behavior (not just score) as reflected on credit reports and the rest will follow

• Take the credit building approach over the debt management approach if possible:

• 3 active accounts (ideally a mix of product types)

• On-time payments

• Paying off collections alone is not credit building

• Offer clients a pathway for building and leveraging good credit


Join our CBA Credit Builder Community©

Invest in your Credit Building Capacity!The greatest source of credit building

expertise lies in the combined experience and knowledge of practitioners on the ground.

Introduction:CBA’s Advantage


Post-TrainingSurvey


Sarah Chenven202-888-7585

[email protected]

Feel free to get in touch if you’re interested in learning about additional training opportunities or services

Thank You!!!

mailto:[email protected]

www.creditbuildersalliance.org [email protected]© 2013 credit builders alliance, inc....

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