Asset Building through Credit Pilot Program

Funded by the Citi Foundation.

In today's economy, a good credit score is an important financial asset that allows families to access resources and, in some instances, reduce their cost of living. Many low-income microentrepreneurs have 'thin files,' or slightly impaired credit histories, that make it challenging for them to access business loans. Research has shown that the best way to build financial capability — strong financial knowledge and management skills — is by pairing financial education with financial products that allow individuals to develop those skills. This pilot is designed to test the effectiveness of a secured credit card, paired with financial education and counseling, to help low-income entrepreneurs build credit. It will also examine whether secured cards can be an effective means for microenterprise organizations to broaden their product offerings and serve larger numbers of clients.

Pilot Design

FIELD has selected five microenterprise programs to market a secured credit card to appropriate clients. The programs will work with microentrepreneurs to analyze their current credit profiles and business development goals, and identify steps toward building their credit profiles. If the card is deemed to be a useful tool in a client's credit-building plan, the microenterprise organization will assist the client in completing and submitting an application for the secured card. Pilot sites also will provide financial education geared specifically toward use of a secured card, will work with approved cardholders to monitor their use of the card and address any issues that may arise with the card.

The pilot sites will also participate in an evaluation and peer learning process led by FIELD, which is aimed at strengthening implementation of the secured card product, and documenting the effectiveness of the product for both microentrepreneurs and microenterprise programs. FIELD is being assisted in the technical assistance and evaluation process by staff from Justine PETERSEN, a microenterprise organization based in St. Louis that has been offering a secured card to its clients since 2009. Read about Justine PETERSEN’s client experiences in credit building with a secured card.

Selected Grantees

Champlain Valley Office of Economic Opportunity Inc. (CVOEO) and Central Vermont Community Action Council (CVCAC): These two Community Action Agencies serving rural Vermont each have over 20 years of experience teaching money management skills to the self-employed. Both agencies offer a wide range of credit- and asset-building services, including group training and individual coaching around credit, matched savings accounts, free tax preparation services, and credit clinics.

Latino Economic Development Corporation (LEDC): LEDC has provided business training and microloans to a largely-Hispanic client base in the Washington DC area (including Northern Virginia and Maryland) since 1997. Over the past several years, LEDC has embedded credit advising and coaching as a core element of its microenterprise programming, with a strong focus on one-on-one coaching.

Mission Economic Development Agency (MEDA): San Francisco-based MEDA, since its inception in 1973, has worked to assist low-to-moderate income Latino families to build assets. MEDA’s Business Development Program provides comprehensive technical assistance and training services and incorporates financial education with a focus on savings, debt and credit. In 2010, MEDA developed a targeted financial education and credit coaching program, which will support its efforts to offer secured cards to its customers.

Pacific Asian Consortium in Employment (PACE): with a long-standing history serving Pacific Asian and other diverse communities in Los Angeles County, the Business Development Center at PACE was founded in 1994. PACE’s Financial Education and Asset Building Program (FE/AB) has provided a wide variety of training and individual counseling targeted at building credit since 2003.

Women’s Brooklyn Enterprise Center (WBEC): Affiliated with the Local Development Corporation of East New York, WBEC has provided entrepreneurial and financial education and technical assistance to women and minorities in Brooklyn since 1988. In 2002, WBEC began providing one-on-one counseling and financial education in conjunction with its business training.