Tuesday, October 9, 2018

Good minds thinking alike to tackle a nationwide problem

Low credit scores equal high costs for
debt -- a bad combination for anyone
but especially hard for low-income workers.
“How familiar” I thought last week as I read this post by the Urban Institute’s Emily Peiffer. Americans don’t understand credit very well, and low- and moderate-income people are more likely to suffer negatively from the impacts of having low credit scores. They’re also more likely to have low credit scores, or no score at all.

As we’ve seen at Appalachian Community Federal Credit Union and as Peiffer points out, “credit, preferably prime credit, is critical for families who need to smooth expenses until the next paycheck or pay for an emergency.” And as the institute’s Margery Austin Turner adds, safely building credit can mean everything in terms of people’s “ability to move themselves ahead financially and potentially out of poverty and into financial security.”

Urban Institute did some great work with this recently-released video that combines humor and fact to show how common myths about credit are in the U.S. What’s not humorous is the financial toll having subprime credit or no credit at all takes on low and moderate-income working families. By extension – and I’m so glad to see this addressed in Peiffer’s post – employers suffer.

Think about it: You’re living paycheck to paycheck and the car breaks down, or your kid gets sick and can’t go to daycare so you miss a few days of work. You have poor credit. The accompanying graphic shows the cost for your $550 car repair if you have to take out a payday loan to get the work done and pay it back over three months – nearly $400 in interest. With prime credit and enough capacity to put the bill on your card, it would cost you just $15 in interest to pay it back over three months.

Jennifer Black, right, went from being a self-described financial mess
to a homeowner thanks to coaching from Candy Craig, left.
Time and again with coaching clients we see these types of situations, often after things have snowballed out of control. Too often, people in these situations have quit or lost jobs as a result. That’s one reason ACFCU has an innovative partnership with Senture LLC and Kentucky Highlands Investment Corp. that offers a 7 percent, payroll-deducted hardship loan program for employees who qualify. (See page three of KHIC’S 2018 newsletter for a story on the program.) Most have subprime credit in the 500s, yet the default rate is minuscule and the program is helping Senture retain workers.

ACFCU offers one-on-one financial coaching to help the borrowers begin the journey toward financial health, better credit scores and the knowledge to remain on the right path. The credit union hopes to convince other employers of the value such a program can generate.

That jibes with comments in Peiffer’s post from Brenda Palms-Barber of North Lawndale Employment Network and Ricki Granetz Lowitz of Chicago-based Working Credit. Palms-Barber says employers need to be approached “in a language that speaks to (them),” adding that credit-building services can help reduce the cost of turnover. Lowitz notes that such programs help employers built a more financially resilient team.

Thankfully, we’re also beginning to see time and again the positive results when working families do take advantage of one-on-one financial coaching. Those results help both the families and their employers. It’s good to see we’re not alone in recognizing the importance of these kinds of efforts and innovating to try and make good things happen.

(Jeff Keeling is vice president of communications and community relations for Appalachian Community Federal Credit Union.)

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