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Credit Building Product PrimerTo date no central, updated database exists to help organizations and their clients access ideal credit building products for them across the country. The challenge with such includes the number of products and providers, ensuring that information is updated in real time, and the reality that products come and go and underwriting evolves over time. In an effort to capture some core credit building starter products, Prosperity Now has created a document that includes general descriptions of those products, examples of providers and products themselves, as well as core considerations that will be helpful for your organization and your clients in determining what the right fit is. Please remember that these are all examples, this is not an exhaustive list, and the information is provided for informational purposes only, without any representation that it will remain accurate, complete or is appropriate for your organization or purposes.?As you review each product described in the attached spreadsheet, be cognizant of your organization’s timeline for implementation. Identify whether the product/strategy is a good fit now, later or not at all—both for your organization and most importantly for your clients. As with any traditional loan or credit card, missed payments and over-indebtedness are risks for clients. Ensuring client readiness is key to helping them successfully build credit.Questions and Considerations Applicable to ANY Product!Organizational PerspectiveClient PerspectiveCan the lender show the product's impact? If they are eligible for the product (i.e. do they meet the basic underwriting criteria, and if the product is being offered by a financial institution, will they encounter any challenges if trying to open a bank account, i.e. Chexsystems)?Does the lender offer the product as needed by our clients?Can they make the minimum monthly payments on time for this and any other product they might have or take out in the near future? Do they understand the consequences of paying late or defaulting altogether on the product?Do we have good contacts at the lender who understand our clients' needs and our mission?If making payments through a bank account, what is the lender's policy on repayment directly from that account? How can the borrower mitigate harm if they have insufficient funds in their account in any given month?Can we build referrals into our financial capability programming? Is our leadership supportive?Do they need to have a valid social security number to access the product? If not, what type of ID do they need?Does staff have the knowledge and tools to make appropriate referrals and/or prepare clients for them (i.e. the terms and basic eligibility criteria of the loans; access to credit reports in order to help assess if clients are good candidates for the loans)?For loans available online specifically, how is the lender assessing their ability to repay the loan?Most programs require a bank account to participate. How will your organization support borrowers might otherwise be eligible but do not have bank accounts? ?Can/will the lender be willing to modify certain criteria to make it easier to open a bank account (i.e. waiving Chexsytsems checks)??What is the lender's policy on repayment directly from the borrower's bank account??What type of credit or financial education offered alongside product, if any??What kind of support might clients need once they are using a credit building product and is the organization staffed (and staff trained) to help clients who may be struggling??How are credit outcomes tracked, which ones are tracked, and does your organization get access to those data? If so, for individual clients or anonymized aggregate??If for-profit, have they signed onto CFSI's compass principles for small dollar credit??Key QuestionsAsk the lending organization for proof of licensure or for a reason they may not need to be licensed. For example, non-profits may be exempt from licensure.Understand the consequences of non-payment on clients (i.e. credit as well as collections practices)PRODUCTOrganization PerspectiveClient PerspectiveProvider and Product ExamplesCredit Builder LoansPrimary purpose is to help people build credit in order to achieve longer-term goals. Small starter installment loans with 6-12 month terms. Instead of receiving money at the time the loan is made, the loan funds are held in a savings account until repaid by the borrower. Investigate options with Community Development Credit Unions (CDCUs) and nonprofit Community Development Financial Institutions (CDFIs) in the community. Many CDCUs offer some form of starter "secured" personal loan, however, borrowers generally must be credit union members. Some CDFIs also offer credit builder loans, however these may be limited to individuals living in a specific geography or participating in certain programs. Identify whether the lender also provides financial counseling or credit coaching or whether that is a role better offered by your organization to assist the client.Beneficial for credit invisible and unscored.May not be good fit for those who have more urgent need for upfront loan capital.Can take at least six months to build a credit history. Consider this timing in decision to pursue larger asset building and financial capability goals.Nonprofits:Community Development Credit Unions (CDCU) (national): nonprofits like Community Development Financial Institution (CDFI) loan funds (national): . Example: Justine PETERSEN's Save2Build Loan: Profits:? Self Lender (national)? Oportun (AZ, CA, FL, IL, NM, NV, TX and UT. Loans to ID, MO and WI residents are online only)? Spring Bank (New York City)Key Questions? How are late payments treated by lender? ? What happens if a client wishes to close the loan early?? How are these actions reported to the credit bureaus?? What products are available for "graduation" purposes after the credit builder loan is paid off? PRODUCTOrganization PerspectiveClient PerspectiveProvider and Product ExamplesCredit Builder Loans PLUS matched savingsSame purpose and design as credit building loans with addition that on time monthly payments are matched with grant funds.Limited to specific geographies, lenders and/or often available only to those participating in certain programs.Some programs require that the savings match be used as a deposit for a secured credit card.Beneficial for credit invisible and unscored.May not be good fit for those who have more urgent need for upfront loan capital.Added benefit of match funds that may be used for ongoing credit building, invested in liquid savings fund, and/or paying down debt.Nonprofits:LISC Twin Accounts offered through LISC Financial Opportunity Centers in various states in partnership with Justine PETERSEN: accounts offered through Working Credit NFP in partnership with participating employers in some states: Building IDAs offered through CASA of Oregon in partnership with select IDA direct service providers in Oregon: Questions? What is the match? ? Does the match have to be used for a specific purpose (i.e. paying down other debt, as a deposit for a secured credit card)?? What happens to the match if the client misses a payment or prepays the loan early?? Who is the lender of record and who does the client file a dispute with if they find an error with the loan reported on their credit report?PRODUCTOrganization PerspectiveClient PerspectiveProvider and Product ExamplesSocial LoansSocial loans, or lending circles, have long been an informal way for family, friends and neighbors – particularly in immigrant communities – to help each other gain access to low-cost capital. Through revolved payments (one person at a time receives the loan), participants can build credit in a social setting, often also paired with financial education.For a fee, many nonprofits partner with Mission Asset Fund, which acts as the lender of record and manages all of the loan origination and servicing on the back end. Well positioned resource for organizations serving immigrants and other culture-specific groups that might quickly form trust.Does not require loan capital because leveraging borrowers' own funds.It is important to understand clients' motivation to participate, and to consult other groups to create group dynamics that set individuals up for success with the loan product.Beneficial for those who are credit invisible, unscored and with poor credit, with discernable goal for use of funds within 6 to 12 month period (such as debt reduction or cover immigration-status related cost).May not be good fit for those who have more urgent need for upfront loan capital, or those who are not willing to actively participate in a group setting.Nonprofits:Lending Circles offered through Mission Asset Fund and in partnership with nonprofits across the country: Savings Club offered online by Esusu: Questions? How exactly does the lending cycle work (i.e. at what point does the client get to take the full loan)? ? What is the policy if one of the borrower's in the group doesn't repay?? Who is the lender of record and who does the client file a dispute with if they find an error with the loan reported on their credit report?PRODUCTOrganization PerspectiveClient PerspectiveProvider and Product ExamplesRent ReportingRent reporting involves the regular monthly reporting of tenant rent payments to at least one of the major consumer credit bureaus for inclusion on the consumer credit report. Ideally, rent reporting is embedded in other financial capability and asset building programs offered to tenants. Rent reporting has begun to be adopted by some larger landlords but not all. There are also a variety of fee-based services that allow individual renters to have their rental payments reported. In order to furnish rental payments to the credit bureaus, a landlord must be credentialed as a rental payment data furnisher or partner with a qualified third-party entity that meets the credit bureaus' criteria for furnishing rental payment data.Rent reporting for credit building is still a new and evolving option and the three different bureaus handle it differently. One offers positive-only reporting and the other two offer full-file reporting. For more information about rent reporting, visit Credit Builders Alliance's website: for those who are credit invisible, unscored and with poor credit, with little risk or need to take on new debt.Individual renters may sign up with third party payment processing or verification service providers to have their rents reported. There is almost always a fee per resident, which can cost up to $10 or more. Whether or not a fee is assessed will depend on what company is used, whether or not their landlords are subsidizing this service. Because fees can range, organizations should explore multiple options.Nonprofit and for-profit landlords (ask the landlord!)For-profit third party rental payment processors such as:? RentTrack? RentDynamics? Rental Kharma? PayLease? PayYourRent? RentReporters? Keyo ? MoCaFi? EsusuKey Questions? Does or would a client's landlord offer rent reporting? ? Are clients comfortable paying rent online through their checking account -- either through ACH or bill pay?? What happens if clients sometimes pay their rent late?? Can historical rental payments of clients be reported?? How does a client dispute an error with their rental trade line on their credit report?? What are the costs to have rental payments reported? ? Which credit bureaus are the rental payments being reported too?? Which credit scores reflect rental payment data?PRODUCTOrganization PerspectiveClient PerspectiveProvider and Product ExamplesSecured CardsA secured credit card is backed by money that you deposit in a locked bank account. That account serves as security for the card. Other than the security deposit, secured credit cards work the same way as unsecured credit cards.Graduation from secured to unsecured status is possible.When looking for a secured card begin at the client’s current financial institution. There are also online anizations should ensure that staff are bought into the initiative, since practitioners may be resistant due to concern for clients becoming over indebted. Organizations should define their role in promoting and supporting their clients' access to and use of secured cards.Given the variety of terms associated with credit cards determine ahead of time if the organization plans to vet specific cards or refer clients to sites like Nerdwallet and Credit Karma.Beneficial for credit invisible and unscored, and those with low outstanding debt levels. Must be able to put up security deposit as collateral.This is a stepping stone product and can help clients practice successfully managing revolving credit in preparation for an unsecured card.Understanding the impact of maintaining a low debt balance relative to the card's credit limit is key to ongoing credit building success.Secured credit cards are offered by depository financial institutions (banks and credit unions).There are non-bank products offered by Fintech companies, which generally partner with traditional financial institutions to do so.Some secured credit cards are specifically designed for people seeking to gain or regain access to credit, including:1) Capital One(R) Secured MasterCard2) USAA3) Discover it(R) Secured4) First ProgressFind more at: Key Questions? Is there an annual fee? ? What is the APR? ? What is the credit limit and the minimum deposit requirement? ? Is it possible to exceed the credit limit and what happens if so? ? What are the requirements to raise the credit limit?? Which credit bureaus does the card issuer report to?? At what point can the client graduate into an unsecured credit card?ServicePurposeOf Note...Practitioner ResourcesConsiderationsCredit EducationThe focus of credit education is to help individuals build knowledge and skills to understand and address their credit practices through in person or virtual classes and curriculum.Credit generally one element of larger curriculumVisit: FDIC Money Smart: Money, Your Goals Toolkit (modules on credit and debt): Trade Commission: is the learning style of your clients? Is there follow up support for individuals who need assistance dealing with their credit?Are participants tested on knowledge? ServicePurposeOf Note...Practitioner ResourcesConsiderationsCredit CounselingProcess designed to help individuals dealing with current, urgent credit and debt issues with focus on debt management or settlement.Both include Credit Remediation*Visit: Credit Builders Alliance to inquire about access to soft inquiry credit reports: Association for Financial Counseling & Planning Education to find a counselor: National Federation of Consumer Credit Counselors to find a credit counseling agency: : Clients may access free annual credit reports for themselves: or call 877-322-8228Federal Trade Commission tips and templates for disputing errors on credit reports: organization must be credentialed to pull credit reports from the credit bureaus.Online, "free" education platforms like Credit Karma can be tools, but help clients recognize the trade-offs of providing them with their information, such as marketing.Can staff and clients distinguish between legitimate and frivolous disputes?*Credit CoachingEmpowers clients with knowledge, skills and access to resources so that they can make informed, goal-oriented decisions around their personal credit. ServicePurposeOf Note...Practitioner ResourcesConsiderationsCredit BuildingThe establishment and maintenance of an active trade line that could show up on a credit report as an economic mobility strategy.Requires access and successful use of a credit productVisit: Credit Builders Alliance at and its companion website to learn more about credit building and how your organization can join a community of credit building organizationsCredit building is not for everyone. Assessing client readiness is critical to setting clients up for success. *“Credit Repair” is a term often used interchangeably with credit building/credit remediation, but it is a red flag to the credit bureaus. The bureaus consider credit repair to be a tactic that disputes every negative tradeline on an individual’s credit report regardless of whether a consumer recognizes the debt as their own. Nonprofit and other responsible entities working to help individuals resolve errors, manage debt and deal with collections, may wish to use the term credit rebuilding or remediation. ................
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