Guest Blogger: Dara Duguay, executive director, Credit Builders Alliance, www.creditbuildersalliance.org
A good credit history is crucial in today’s economy. Far more than just a number, a good credit score can make the difference in being able to access the affordable lending products necessary to go to college, buy a home, or start and grow a small business. Renting an apartment, paying for car insurance, signing up for utilities and even landing a job can also be affected by a person’s credit history—or the absence of one.
And estimated 64 million Americans have no or “thin” credit files. For them, the ability to establish a good credit history is critical. Credit Builders Alliance (CBA) connects non-profit lenders with the credit bureaus, which enables the lenders to report their borrowers’ loan payments, which generates a credit history. However, if the lender chooses to not report to the credit bureaus, their borrowers are missing an opportunity to build a positive credit history through their on-time payments.
How many CDFIS are Reporting to the Credit Bureaus?
To better understand how many CDFI credit unions and nonprofit loan funds are reporting their loans to the major Credit Reporting Agencies (CRAs) to help individual and institutional borrowers build consumer and/or commercial credit histories, CBA conducted a survey and collected data from 73 CDFI respondents from June-August 2016. Around half of the CDFIs surveyed currently report their loan portfolio to at least one CRA. Of those that responded that they do NOT report to a CRA, 51% offer mortgage loans, 77% lend to small businesses, and 26% offer women and minority focused loans. These loans are the type that could benefit individual borrowers and in some cases the small businesses that they run, by helping to build their consumer and/or commercial credit histories.
Is Credit Reporting Beneficial for the Borrower?
The contention that credit reporting benefits the borrower was confirmed when CBA partnered with Experian in a first-ever national study of CBA’s membership to understand the impact of reporting loan repayments on one’s financial health. The analysis confirmed exactly what our experience has shown to be true—when people pay regularly on their credit obligations and these payments are reported to a CRA—individuals will benefit through building stronger credit reports and scores.
Some of the key findings from the analysis included:
- Fifty-eight percent of the borrowers experienced increases to their VantageScore® credit scores
- The prime population increased by 5%
- More than 20% moved to a lower risk category, i.e., from subprime to nonprime
- More than 73% of consumers increased their active, open trades
These indicators confirmed the relationship between building credit and increasing credit scores, lowering one’s risk category and qualifying for additional sources of credit. Consumers benefit since an overall more positive credit report can tend to result in lower costs of credit. As an example, a consumer can save roughly $4,000 over a $10,000 five-year auto loan if his or her payments are at 3% interest as opposed to 17%.
Is Credit Reporting Beneficial for the Lender?
In an attempt to provide evidence that credit reporting was as good for the lender as it was for the borrower, CBA decided to conduct another analysis of its lender members who are currently reporting to the major credit bureaus. What CBA found was strong evidence of the many benefits to the lenders:
Clearly, CBA’s analyses show that credit reporting benefits both the borrower and the lender. Because of the potential for very positive impacts, CBA will continue to encourage non-profit lenders to become data furnishers. It is our mission and we have rededicated ourselves to it, wholeheartedly.
If you are interested in learning more about becoming a data furnisher and starting to report your loan portfolio, you can learn more here or contact CBA at 202.7309390 or firstname.lastname@example.org. Register today for CBA’s 2017 Credit Building Symposium.
 CBA’s mission is to help nonprofits move their clients move from poverty to prosperity through credit building. CBA’s Reporter service currently enables 183 nonprofit lenders to report over $1.2 billion in loan capital every month to the major consumer and commercial CRAs.