Tool to Improve Credit has Huge Impact for Financial Opportunity Center Clients
A bad credit rating, or no rating at all, is a serious hurdle for people working toward financial independence. Not only are the fees, deposits, and higher interest rates charged to people with impaired credit difficult for many to overcome, a bad credit score can even stand in the way of a better job.
To help address this problem, LISC piloted Twin Accounts™, a tool to help people build their credit and establish some savings. The first cohort was hugely successful, and the program was rolled out and made available to all of LISC’s Financial Opportunity Centers. Here in Rhode Island, Genesis Center, Amos House, and the Providence Housing Authority all provide financial counseling through LISC supported programs and offer LISC Twin Accounts as one of their tools.
“Many of our learners have no credit history, which makes it very difficult to move forward,” says Shannon Carroll, President and CEO of Genesis Center, a Providence-based non-profit that provides financial coaching, adult education and job training. “Without credit, it’s nearly impossible get a loan to buy a car or to buy a home.”
LISC Twin Accounts is designed to help low- to moderate-income people build credit and save money at the same time. Participants are issued a 12-month, $300 loan which is immediately transferred into a “locked” savings account, where it remains until the loan is paid off. Clients make monthly payments of $26.24, which are reported to the major credit bureaus.
LISC then matches each monthly payment–dollar for dollar–as long as it paid on time. At the end of the loan term, participants who make 12 on-time payments have $300 in savings and $300 in matching funds. They also have improved credit, as the credit bureaus have 12 months of on-time payments reflected in a new credit score.
“We have found Twin Accounts to be a valuable financial tool to help students build credit and savings. Twin Accounts, paired with financial coaching, equips our participants with the tools to accelerate their progression toward financial security,” says Carroll.
Most clients pay off the loan in full within the 12 months, and to help them continue building credit beyond the term of the loan, they must use their matched funds to open a secured credit card. Clients who are unscored when they first begin working with an FOC usually achieve a FICO credit score of 676 within six months.
“That’s a huge improvement,” said Carroll. “That can mean all the difference to someone working to get on a better footing.”