Saving Money While Building Credit with eMoneyPool

By Sabrina Terry, Senior Strategist, Economic Policy Project, UnidosUS

Photo: Got Credit.com

Building credit is an essential part of economic security for any American, but especially low-income Latinos and immigrant families. Latinos, like other communities of color, have historically been shut out of credit-building opportunities and continue to face several obstacles.

Latinos’ financial background make it difficult for them to acquire credit through traditional financial institutions. Per the Consumer Financial Protection Bureau (CFPB), Hispanics are more likely to be “credit invisible” than their White counterparts, and have some of the highest rates of un-scored credit records. These challenges are exacerbated for Latino immigrants who must also overcome language, proof of income, and legal status barriers when navigating the U.S financial system. Despite their economic hardship, Latinos are avid savers and prefer to take a savings-based approach to financial challenges. Yet, savings alone will not help them bridge the gap between their earnings and their expenses or to take advantage of economic opportunities—they also need access to credit.

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Affiliate Spotlight: Mission Asset Fund Is Helping Low-Income Latinos Reach Financial Prosperity

Financial freedom is one of the cornerstones of the American Dream. That’s why every day, NCLR works hard to advocate for policies that help Latinos gain access to financial products that will put them in control of their finances.

We also work closely with our Affiliate Network, which works in communities around the country to implement programs that also help Latinos gain financial freedom. One such Affiliate is NCLR’s 2015 Family Strengthening Award recipient, Mission Asset Fund (MAF). As we wrap up Financial Capability Month, we’re proud to feature a Q&A with MAF’s Tara Robinson as our April Affiliate Spotlight.

NCLR: What is Mission Asset MAF Veronica, El HuaracheFund’s stated organizational mission? 
MAF: Based in San Francisco, MAF was originally founded in 2007 with the support of the Levi Strauss Foundation and other community leaders. We are on a mission to create a fair financial marketplace for hardworking families. We do this by helping everyday people—line cooks and housecleaners—save money, build assets, and access affordable credit. We create financial products and services in San Francisco, then we provide them to communities across the nation through nonprofit partnerships. Together, we are helping thousands of low-income families across the country come out of the financial shadows and build brighter financial lives.

NCLR: What programs does MAF Kimberly and MomMAF offer to reach the goals outlined in its mission?
MAF: In 2008, MAF developed the Lending Circles program, a credit-building financial program that organizes low-income people into social loans so they can support each other by lending and borrowing money at 0% interest. The program enables participants to establish bank accounts and credit scores for the first time, while helping others rebuild damaged scores. Lending Circles offer a fresh take on social lending, enabling participants to build credit while increasing assets and improving financial capability. To date, MAF and our partners have serviced over 5,455 zero-interest social loans worth more than $5 million, and saved low-income consumers over $1 million in interest and fees.

NCLR: What is financial MAF Mother and Daughterexclusion and how is MAF addressing it?
MAF: Financial exclusion—the lack of access to basic banking services and credit—is a pervasive issue for low-income families across the country. The FDIC reports that 17 million adults are unbanked—they do not have basic checking or savings accounts. Similarly, the Consumer Financial Protection Bureau (CFPB) reports that 45 million adults are invisible to the credit markets: 26 million do not have credit histories of any sort and 19 million have unscored records. CFPB also noted a strong relationship between income and credit, finding that 30% of consumers in low-income neighborhoods are credit invisible and 16% more have unscored records. That’s why building credit is such an important issue for low-income families. Without it, you are the frequent target for predatory lenders or unfairly high interest rates. But in addition to that, you can’t plan ahead—there’s no good way to invest in homes, education, or building a small business.

NCLR: What does it mean for MAF CafeMAF to be part of the Affiliate Network? 
MAF: In addition to our mission being aligned with NCLR, the Affiliate Network is a wonderful resource for connecting organizations who are looking to support and collaborate with each other. It helps us connect with other organizations who are invested in the intersection between immigration and economic security. Through the network, we’ve been able to expand our programs and garner support for policy changes that help the entire field. We’ve also been kept abreast of issues and initiatives other network members are tackling and have been able to lend our support for their efforts.

NCLR: How has being part of the Affiliate Network served MAF in the past?
MAF: MAF is now operating Lending Circles in 18 states through 53 nonprofit partnerships. The Affiliate Network has helped us to reach out to new partners in Los Angeles and other cities who are looking for a solution to help low-income families build credit and assets. It’s also meant that we’re involved in the NCLR Annual Conference and important discussions like economic inclusion roundtables where we could share best practices and network with decision-makers.

NCLR This month is Financial MAF D'MaizeCapability Month. What is financial capability? How does it help advance Latino families?
MAF: At MAF, it’s more than just financial literacy—it’s having a financial passport. Financial education is important, but so is access. Every participant we serve receives financial education (it statistically increases credit scores by an additional 27 points) before joining a loan program. But because we know that being financially literate is not the same as having financial access, we take a strength-based approach to build on the assets and financial savvy people already have. That’s really where the inspiration from Lending Circles comes from.

NCLR: We recently highlighted MAF in a blog post about alternative credit. Can you talk about what this means and how you manage lending circles?
MAF: The key to MAF’s programs is actually that we’re not providing alternative credit. We’re providing access to zero-interest loans that are recognized by all three major credit bureaus. We’re helping low-income people come together, borrow and lend money to each other so that they can transition into the mainstream. We’re helping people save money on fees in interest in the long term by taking an informal practice (known by some as tandas) and translating it through promissory notes and credit-reporting.

NCLR: MAF was the recipient of the MAF Helen and DaughterNCLR Family Strengthening Award last year. Can you tell me how this award is reflective of MAF’s work? What should other Affiliates be doing to ensure they are strengthening families in their own communities?
MAF: Even the title of the award is significant because from the very start, one of our organization’s core values was to “recognize the value that people bring to the table.” Our CEO José A. Quiñonez does a great job of summing this up in the recent report, What it’s Worth: Latinos in the Financial Shadows. He writes: “It will also take a fundamental paradigm shift in social policy away from a model that engages clients as if they are broken to one that recognizes and uplifts their strengths. We cannot build an inclusive financial system based on distorted views of low-income consumers. Deficit-based programs, products, or policies not only rob people of agency, they also distort our view of what is possible. These distortions constrain our imagination, hampering our ability to build meaningful solutions to people’s financial lives. Techies in San Francisco should not be the only ones to reach their economic potential. The American Dream cannot be reserved for the few. Everyone in America deserves the same right, the same opportunities to see their true selves realized.”

NCLR: Where do you see MAF Staff and ClientMAF in the next five years? 
MAF: Expand, innovate, and incite change for good. Our nationwide network of nonprofits will continue to increase and grow across the nation, providing financial access to thousands more consumers in the year to come. But we won’t stop with expanding Lending Circles. We will also continue to innovate new financial products that meet people’s pain points. And we will continue to be part of policy discussions at the state and federal level—sharing what we’ve learned and taking lessons from the ground and applying them for good.

Building Credit When You Have None

By Nancy Wilberg Ricks, Senior Policy and Communications Strategist, NCLR

Photo: Frankieleon, Creative Commons

Photo: Frankieleon, Creative Commons

Do you have a credit score or credit history? If not, you’re “credit invisible” and your choices are much more limited than for those who do have credit. You won’t be able to purchase a home, and you’ll likely have challenges getting the apartment or job you want.

But you are not alone. Roughly 45 million Americans are not “credit scorable” or off the credit map entirely.

According to a recent report by the Consumer Financial Protection Bureau (CFPB):

  • 30 percent of people in low-income neighborhoods are credit invisible, compared to 4 percent of people in higher-income neighborhoods.
  • 15 percent of Blacks and Hispanics are credit invisible (compared to 9 percent of Whites and Asians).
  • An additional 13 percent of Blacks and 12 percent of Hispanics have unscored records (compared to 7 percent of Whites).

These differences are apparent among all age groups, suggesting that these differences surface early in adults’ lives and can persist.

The CFPB’s report confirms what NCLR has known for some time: potentially creditworthy individuals are often overlooked because they have a thin credit file or no file at all. While they might have strong saving and spending behaviors, many Latinos can encounter challenges gaining traction in traditional credit scoring models.

A 2010 NCLR study indicated that many participants were turned down, often repeatedly, before they were approved for a credit card. One respondent said:

I applied for a credit card, and they said they would call but they never did. So I called to see what was going on because I had one in my country and I always used it responsibly. Like my dad always said, sometimes it is better to have credit than money. I applied for it and they didn’t give it to me…They told me it was because I didn’t have a credit history and nobody knew me. That’s understandable, but like I said to them, based on the amount of money I have they should give me a card, even if it’s just for $100. But they didn’t give it to me.

There are solutions, though. Some are advocating for credit reporting companies to incorporate additional scoring characteristics such as rent or other bill payments into one’s credit score. This can be effective but complicated. In the case of utilities, for example, some families pay the heating bill in fits and bouts, and that erratic payment activity could undermine efforts to help the most in need. It could even open families up to predatory market players and fraud.

HousingDiscrimination_blogpic_newA different solution is being offered by lenders such as the Mission Asset Fund (MAF). Located in San Francisco, MAF provides zero-interest loans through lending circles to help borrowers begin building credit and accessing safe small-dollar loans. Participants are required to take MAF’s online financial training courses before joining a lending circle. Everyone in the lending circle makes the same monthly payment ($50–200), and MAF reports this activity to the credit bureaus.

MAF stands out as a very successful model that helps individuals build credit in a nontraditional way. These alternatives are essential for many Latinos and new immigrants in particular, who might have limited experience with the mainstream credit system.

The CFPB’s report draws attention to an enduring problem and will hopefully generate new policy improvements to the system. Right now, some families are certainly qualified for better financial products but could never access them because they’re not in the mainstream. Advances here could mean the difference between a prime loan or a fringe payday loan, putting families on vastly different trajectories in their financial well-being.