Post on 11-Jan-2016
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© 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 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
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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.
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Welcome!
ICEBREAKER: Tell us about yourself and what you hope to
gain from this training.
1A2
Introduction:First Impressions
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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
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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!
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Who is ?
1A3
Introduction:First Impressions
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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
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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
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Introduction:CBA Credit Builder Community
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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
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What is credit and why is it important for youth?
ACTIVITY
?!@
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Credo: CRED o (kreed’ o) v. trust
Credit: CRED it (kred’ it) n. value; worth
Introduction:First Impressions
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Why Credit Building?
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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
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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
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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
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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
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$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
Why Credit Building?Credit Matters
Good Credit = SAVINGS
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Home-ownershipSmall BusinessesHigher Education
Good Credit = ASSETS
Why Credit Building?Credit Matters
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In many states, credit history can still affect employment opportunities
Why Credit Building?Credit Matters
Good Credit = OPPORTUNITY
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Youth with no, “thin” or poor traditional credit histories have few opportunities to build good credit
Why Credit Building?BUT….
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• How is Credit an Asset for youth?
Peer Learning
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BREAK!
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The Changing
Credit Industry
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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
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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
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Today’s CreditUnintended Consequences: Consumers
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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?
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Why Credit Building?Defining Credit Building
We Know Good Credit is an Asset…
…how can we help our clients build it?
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First, what exactly is Credit
Building?
Q:
What is Credit Building?What?
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Credit Repair = fixing negative history
Credit Counseling = dealing with current crisis
Credit Building = creating opportunities for the future
A:
What is Credit Building?What?
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How do you build credit?
Q:
What is Credit Building?How?
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ON-TIME payments REPORTED to a credit bureau
EVERY monthBUILDS credit
=ACTIVE TRADE LINES
A:
What is Credit Building?How?
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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?How?
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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
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3 ACTIVE trade lines MIX of installment and revolving 6 months
What is Credit Building?Best Practice
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The CBA Credit Builder 5-Step©An Action Plan Framework for working with youth to build credit
What is Credit Building?How?
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CBA Credit-Builder 5-Step©
Consider the Goal
Know the Score
Get the Good Stuff Going
Deal with Debt
Leverage Success
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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.
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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.
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Peer Learning
Share your clients’ goals
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LUNCH!
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Consider the Goal
Know the Score
Get the Good Stuff Going
Deal with Debt
Leverage Success
CBA Credit-Builder 5-Step©Step 2: Know the Score
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• 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
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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
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Know the ScoreWhat we know
But, there are 1000s of
Scores?!?!
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Know the ScoreWhat we know
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.
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Know the ScoreWhat we know
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:
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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
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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
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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
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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
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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
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Scores are important
but…
Know the ScoreWhat we know
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Know the ScoreScores are Important But…
…focus on the trend upwards, the range, and the underlying behavior
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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:
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• 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
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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…
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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.
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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.
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ACTIVITY
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Peer Learning
Share your thoughts on the credit report assessment tool.
How useful is it?
Can you imagine using it with youth?
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BREAK!
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Consider the Goal
Know the Score
Get the Good Stuff Going
Deal with Debt
Leverage Success
CBA Credit-Builder 5-Step©
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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
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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…
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HOW?ON-TIME payments
REPORTED to a credit bureau EVERY monthBUILDS credit
Get the Good Stuff GoingRemember…
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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
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Just AddProduct!
Get the Good Stuff GoingJust Add Product!
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Every monthly payment is a teachable moment!
Education
Product
Get the Good Stuff GoingFinancial Capability
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Get the Good Stuff GoingProduct Models of Success
Credit Builder Products can serve many different people and purposes.
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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!
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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
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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?
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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?
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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.
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Affordable Housing Organization
Renter
Landlord/ Property Manager
Rent Payment Processor
The Future of Credit Reporting Power of Rent Reporting Pilot
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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
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Just Add Product!
ACTIVITY
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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?
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BREAK!
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Consider the Goal
Know the Score
Get the Good Stuff Going
Deal with Debt
Leverage Success
CBA Credit-Builder 5-Step©
www.creditbuildersalliance.org info@creditbuildersalliance.org © 2013 Credit Builders Alliance, Inc. Some rights reserved.
• 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
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Deal with DebtThings to Remember
Debt management ALONE is not a Credit Building strategy
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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
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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
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• 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
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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
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Deal with Debt
ACTIVITY
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Deal with DebtPeer Learning
• What are the youth’s goals?
• How can we encourage/support youth to manage debt wisely?
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Consider the Goal
Know the Score
Get the Good Stuff Going
Deal with Debt
Leverage Success
CBA Credit-Builder 5-Step©
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CBA Credit-Builder 5-Step©Leverage Success
• Help youth leverage improved credit in order to achieve ACCESS, build ASSETS, and increase SAVINGS!
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Tracking credit outcomes can help:
Empower youth
Catch problems early & course correct if necessary
Identify new opportunities & threats
Effectively communicate impact
Leverage SuccessTracking Outcomes
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Can you answer these questions?:
How much? = outputs
How well? = outcomes
What difference did it make? = impact
Leverage SuccessTracking Outcomes
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NEFE Impact Hierarchy
Financial behavior change can be measured by
indicators found on a youth’s credit report
Leverage SuccessTracking Outcomes
How well
What difference?
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• 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
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The most impactful measurement used by mainstream financial institutions to offer them mainstream credit.
Tracking OutcomesSelecting Indicators
Using Credit Score to Track Client Progress
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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
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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
www.creditbuildersalliance.org info@creditbuildersalliance.org © 2013 Credit Builders Alliance, Inc. Some rights reserved.
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 SuccessTracking Outcomes
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Leverage Success
ACTIVITY
Established credit history and improved scores
Access to affordable financial products, housing, and employment opportunities
Increased savings and financial stability
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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
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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
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Post-TrainingSurvey
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Sarah Chenven202-888-7585
sarah@creditbuildersalliance.org
Feel free to get in touch if you’re interested in learning about additional training opportunities or services
Thank You!!!