Until now people who repaid loans from community groups had not been on credit bureaus’ radar. Now Credit Builders Alliance is partnering with Experian to help clients of community lenders build strong credit histories.Consumer credit

Vikki Frank

English

Research Papers in Economics

Communities & Banking    3
by Vikki Frank, Credit Builders Alliance
I
n today’s economy, access to financial services is increasingly 
determined by an individual’s credit score. People with a good 
credit rating will pay approximately $250,000 less in interest 
throughout  their  working  lives  than  those  without.1  The 
impact of a credit score on financial well-being goes beyond 
access to credit and debt. Credit not only helps families buy a 
home, a business, or an education, but impacts opportunities 
for rental housing, transportation, employment, and access 
to checking, savings, and investment accounts.
  Consider the challenge for Rita, an entrepreneur who has 
always paid loans, rent, and bills on time–but not through 
channels that record her payment history. Rita never had a 
credit card. She financed a car through a lender that did not 
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Helping Clients
          Build Credit
Helping Clients
          Build Credit4   Fall 007
report her payments to a credit bureau (it 
would have if she had defaulted). Rita now 
wants to buy a home. When an applicant 
has no credit score, mortgage lenders must 
consider “alternative data.” Unfortunately, 
that’s a lot of work for both the borrower 
and the bank. Rita needs to document 12 
months of on-time bill payments to at least 
three vendors, and the bank needs trained 
alternative underwriters to manually assess 
the risk of lending to her. 
Lending to the Underserved
In the past decade, community and regional 
banks have merged into national financial 
institutions,  and  the  banking  sector  has 
become  increasingly  dependent  on  credit 
scores and the automated underwriting sys-
tem (AUS). AUS allows banks to quickly 
and  efficiently  offer  credit,  but  it  doesn’t 
help everyone. 
People without a credit score or with a 
poor score borrow from high-cost creditors 
that  don’t  generally  report  repayments  to 
credit bureaus and don’t have any interest in 
helping borrowers build credit and graduate 
to  mainstream  financing.  It’s  a  Catch-22. 
The system helps families with good scores 
access affordable financing and gives them 
continued opportunities to access affordable 
credit  and  build  wealth.  The  financially 
excluded, however, are nearly always obliged 
to use high-cost, unreported products, and 
have few opportunities to build a score and 
break the cycle.  
About 40 million people—more than 
15 percent of the U.S. population—either 
have no credit files or very thin files and are 
“unscoreable.”2 Another 25 percent of the 
population  have  poor  scores  (lower  than 
650) that prevent access to prime lending 
products.3 With few opportunities to create 
or  improve  their  credit  scores  at  credit 
bureaus,  these  borrowers  have  less  access 
to competitive interest rates and safe loan 
products. They also are more vulnerable to 
predatory lenders.
The  underserved  do  access  credit 
through  their  personal  networks  or  alter-
native creditors like payday and subprime 
lenders.  Or  they  can  turn  to  community 
development financial institutions (CDFIs) 
and  other  microenterprise  and  housing 
development  lenders.  Unfortunately,  few 
alternative lenders have been reporting their 
clients’ credit behavior to the three major 
credit bureaus.
Credit Reporting Needed
Credit Builders Alliance (CBA) is a coalition 
born out of a challenge that community fi-
nancial lenders and their clients have long 
faced. Many of the estimated 1,000 CDFI 
and microenterprise lenders in the United 
States  that  want  to  report  the  repayment 
history of their borrowers have been unable 
to meet credit bureau requirements. CBA 
surveyed  115  microlenders  in  2006  and 
learned that only 17 percent were sending 
client repayment behavior to a major credit 
bureau. Of the remaining lenders, half had 
fewer than 50 active loans, and only 20 per-
cent  had  more  than  100.  Credit  bureaus   
require 500 open accounts. 
Enter  Credit  Builders  Alliance. With 
seed funding from the Center for Financial 
Services  Innovation  and  with  a  founding 
board  that  included  Central  Vermont 
Community  Action  Council  (CVCAC), 
RUPRI Center for Rural Entrepreneurship, 
and  the  Association  for  Enterprise 
Opportunity  (AEO),  CBA  launched  an 
effort to aggregate data from small lenders 
and furnish the information to the major 
credit bureaus.
A Membership-Partnership 
Model
In April 2006, CBA principals approached 
the three major credit bureaus—Experian, 
Equifax,  and TransUnion—to  learn  more 
about the barriers to their accepting data 
from small community lenders. One chal-
lenge is that the U.S. credit system is a com-
pletely  voluntary  arrangement.  Creditors 
must want to report, and it can be expensive 
for them to do so. Additionally, credit bu-
reaus must be able to cost-effectively verify 
creditors’ information. 
In August 2006, Experian agreed to a 
pilot project with CBA. CBA signed up 12 
community lenders from across the country 
to upload data to Experian. CBA developed 
membership criteria unique to community 
People without a credit score or with a poor 
score often borrow from high-cost creditors 
that don’t report repayments to credit bureaus 
or care about helping borrowers build credit. 
Robert Vickers and Susan Lopez at Washington, D.C.-based Latino Economic Development Corporation 
present a loan check for $,50 to Oswaldo Acosta-Corrales, owner of Picante Foods, a wholesaler of 
Hispanic food products.
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hCommunities & Banking    5
lenders which would assure Experian that 
CBA members are reputable, longstanding 
community  entities.  Most  community 
lenders  are  underwritten  by  foundations, 
after all, not to mention federal and local 
government  entities,  such  as  the  CDFI 
Fund,  Small  Business  Administration, 
and  housing  departments.  In  addition, 
community  lenders  are  not  only  willing 
but  proud  to  provide  information  on 
their affiliations, staff accreditations, client 
demographics, loan portfolio management, 
and annual turnover. 
Equally  important,  CBA  gives  small 
lenders  technical  assistance  to  help  them 
set  up  the  appropriate  technology,  client 
services,  credit  bureau  relationships,  and 
organizational  infrastructure  to  efficiently 
report  and  verify  data.  CBA  also  has 
benefited from the assistance of DownHome 
Solutions  and  CommonGoals  software 
companies, both of which invested in useful 
credit-reporting  add-ons  to  their  loan-
management products so that the CBA pilot 
groups could upload test data to Experian.4 
As a result, Experian has been able to receive 
the data with few disruptions or demands 
on staff time.
As  Experian  senior  vice  president 
Zaydoon  H.  Munir  puts  it,  “Enabling 
CBA’s clients to report data to us expands 
the credit system to many individuals who 
have not had the benefits of an established 
credit history in the past.”  
In  May  2007,  CBA  began  offering 
all  community  lenders  the  opportunity 
to  join  the  organization  and  report  data 
to Experian. It hopes to add other credit 
bureaus in 2008. CBA is getting the word 
out to national conferences and through its 
web site, its software partners, and industry 
listservs. More than 75 community lenders 
made  inquiries  as  of  May  15,  2007,  and 
CBA hopes to have at least 300 members 
by 2010.
Investing in an Asset
Simultaneously, CBA is conducting a cam-
paign to promote increased public aware-
ness about credit scores and to disseminate 
information  about  the  benefits  of  adding 
new and positive lines of credit. It believes 
that the best and quickest way for people 
to remediate a poor or nonexistent credit 
history—and  get  access  to  mainstream   
financing and safe, affordable lending prod-
ucts—is  to  show  a  positive  payment  his-
tory on current open accounts. This is an   
asset-based  approach  and  is  a  departure 
from  credit-repair  interventions  focused 
only on negative accounts and debt consoli-
dation.  A  Credit  Builders Toolkit  funded 
by the Annie E. Casey Foundation equips 
community financial educators with tools, 
strategies, and best practices to help low- 
and moderate-income families build credit 
and improve their financial independence 
and economic well-being.  
CBA  also  plans  to  work  with  its 
credit-bureau  partners  to  evaluate  and 
strengthen  the  wealth  of  credit-risk 
data  that  community-based  financial 
organizations  measure.  If  conventional 
financial institutions must have credit scores 
to  evaluate  creditworthiness,  then  finding 
reliable new data is critical to leveling the 
playing field for all families. 
CBA  believes  that  enabling  U.S. 
community  lenders  to  report  client 
repayments is a cost-effective and efficient 
strategy  for  asset  building  and  moving 
unbanked  and  underserved  families  to 
economic self-sufficiency. 
Vikki Frank is the executive director of Credit 
Builders Alliance, www.creditbuildersalliance.
org, based in Washington, D.C.
Endnotes
1 “Improving Credit Can Save,” CBS MarketWatch, 
January 13, 2004.    
2 “Give Credit Where Credit Is Due,” Political and 
Economic  Research  Center,  http://www.infopolicy.
org/pdf/alt-data.pdf.
3 See http://www.myfico.com/CreditEducation/
CreditScores.aspx.
4 See http://www.commongoals.com and http://www.
downhomesolutions.com for descriptions of software 
designed  specifically  for  microbusiness  and  housing 
community development lenders.
Credit Builders Alliance signed up community 
lenders to upload data to a credit bureau and 
developed criteria to assure the bureau that 
members were reputable community entities.
u This Communities & Banking article is copyrighted by the Federal 
Reserve Bank of Boston. The views expressed are not necessarily those 
of  the Bank or the Federal Reserve System. Copies of articles may be 
downloaded without cost at www.bos.frb.org/commdev/c&b/index.
htm.

Helping clients build credit

http://www.bostonfed.org/commdev/c&b/2007/fall/Vikki_Frank_Credit_Builders_Alliance.pdf

Helping clients build credit

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