credit building - neighborhood partnerships' re:conference 2014
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Metropolitan Family Service helps people move beyond the limitations of poverty, inequity and social isolation.
For over 60 years, weve joined forces with key community partners from education, healthcare, business and government to create opportunities that change lives and make communities stronger. Our commitment to children, families and older adults encourages people across the lifespan to realize their full potential. To accomplish this, we focus our work and expertise onthree critical community initiatives:
Strengthening early childhood development and building youth success through collaboration and innovation...
Developing and promoting effective approaches to community-based health and wellness throughout the lifespan...
Advancing individual and family economic well-being
What we will cover todayProgram overview of the Ways to Work Program Our credit building recipe3 program participant profiles
Program OverviewNational Program Model 35 locations throughout the USAll programs housed at local non profit organizationsNational loan poolVehicle loans only
Program EligibilityResident of Multnomah, Washington, Clackamas (and some others) in Oregon or SW Washington18+ years oldValid drivers licenseInvolved parent(s) of dependent child(ren)Challenged credit (score of 640 and below)Ability to repay the loan
Program Eligibility (continued)Employed at least three months, and working at least 20 hours/week. Yearly household income less than 80% of the area median family income (see below)
Household size Income limit2 person$44,4003 person$49,5004 person$55,5005 person$59,9506 person $64,400
Types of Auto LoansPurchase loan at 8% interest$5,000-$6,000 with 24-30 month term$6001-$8,000 with 30-36 month termRepair loan at 8% interest$500-$1,500 with 12 month termRefinance loan at 8% interest$5,000-$6,000 with 24-30 month term$6001-$8,000 with 30-36 month term
Ways to Work Loan vs. Regular Car loan Ways to Work Loan:
Market Rate Loan:
Loan AmountInterest RateTermTotal of all payments Total interest paid$50008%30$5545$605$65008%36$7331$891Loan AmountInterest RateTermTotal of all paymentsTotal interest paid$500020%30$6394$1,394$650025%36$9,303$2,803Most participants when entering the program have a low credit score (all below 640). The average score when entering the program is 551.7Having a car means.StabilityAt workAt homeFor your family.
Financial goal settingBudget educationCredit review and educationCredit report planningClient relationship building
Ongoing credit building and repair
Three Real Ways to Work Participants Participant one: Loan entry588 6 months534 End of loan700Participant two: Loan entry462 6 months526Participant three: Loan entry n/a 6 months634Participant four:Loan entry560 6 months588 End of loan523
1: NB: Client has past due student loans and a couple collection accounts. She paid off a past debt within the first six months, but was still working to resolve the student loans. At six months, her credit actually took a dip. She kept up to date on all of her car payments and she finally got her student loans out of default. When she paid off her car loan, her score was at 700. 2: LA: Client came to the program with a lot going on with her credit due to a past relationship. She did not have a lot of funds available to pay back debt but wanted to start rebuilding her credit. WE started her in a vehicle loan and we also got her student loans into repayment. She has made every payment to both sources on time the past 6 months and her score has seen improvement. 3: AW: Client was not using credit or banking systems before the program. When we reviewed her credit report for the first time, we found multiple errors. We disputed the errors and the accounts were removed. Client paid each month on time and her score improved within 6 months.4: SE: This client entered the program wanting to rebuild her credit and worked with program staff to create an action plan. She started off making all of her payments on time. At six months, her score went up. She lost her job and got behind on her car loan before paying it off in full. Her credit suffered as a result. 10
Credit as an Asset
Neighborhood Partnerships, October 30, 2014 2013 Credit Builders Alliance, Inc. Some rights reserved. CREDIT BUILDERS ALLIANCE and the accompanying Logo are trademarks of Credit Builders Alliance, Inc. This document is licensed under a Creative Commons Attribution-Noncommercial-Share Alike License (US/v.3.0).
Noncommercial uses are permitted on the condition that you include an attribution to Credit Builders Alliance. If you alter, transform, or build upon this work, you may distribute the resulting work only under the same or similar license to this one. More information regarding the license is at: http://creativecommons.org/licenses/by-nc-sa/3.0/ . Requests for permissions beyond the scope of the license should be directed to Credit Builders Alliance, Inc., at www.creditbuildersalliance.org/.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 consultqualified advisors before making any decisions. CBA does not represent that any of the information will produce results.12What you will learnHow to describe how credit as an asset and the specific ways that improved credit can impact an individuals financial stability.
A basic understanding of credit building and how it differs from credit/debt counseling, and credit repair.
How CBA enables nonprofits provide credit building opportunities to their clients in order to achieve those goals13Credo: (kreed o) v. trust
Credit: (kred it) n. value; worth
What is Credit? Dette: (Det) n. A sum of money that is owed or due
Debitum: n. Something owed
14Credit is the passport to the new economy--Andrea Levere, CFED
15Why Credit Building?Having no credit or poor credit usually brings individuals to the same place: application denial.
Underserved populations, such as low-income households, households of color, immigrants, and younger consumers, are more likely to have no or low credit histories. Often times this is because they are not connected to the financial mainstream with a savings or checking account, which makes it much tougher to get a traditional credit card or bank loan. 16Credit is a deficitCredit is an ASSET!Shifting the Paradigm 17
Paid in Full each month = 30 day 0% loan
400%+ APR = cycle of debtWithout access to affordable credit it is difficult if not impossible to achieve or maintain financial stability or security
Why Credit Building?PRODUCTS MATTER18Why Credit Building?OPTIONS & OPPORTUNITIES MATTER19$10,000 auto loan5 year termScore Interest RateMonthly Payment50017%$249.0062011%$217.007203%$182.00
Potential Savings each month = $67over 5 years = $4,020
Source: www.myfico.comWhy Credit Building?CASH FLOW & SAVINGS MATTER$100,000 mortgage30 year fixedScore Interest RateMonthly Payment