COSTA MESA, Calif. (9/18/14)--A new study from Experian confirms that building a credit history is beneficial to financially marginalized communities.
In partnership with Credit Builders Alliance (CBA), Experian sought to understand the potential impact of loan repayments being reported to them by CBA's members, who are nonprofit lenders.
The average client served by a CBA member is high-risk, with about 40% classified as subprime. The study's overarching conclusion showed that consumers who opened a credit product offered by a CBA member--and paid as agreed--experienced a significant shift into a more desirable credit risk segment, raising their credit score and qualifying for additional credit.
Experian research estimates that there are 64 million consumers with limited credit history to no credit history that are "unscoreable" or "credit invisibles." Lacking a credit report hurts these consumers' opportunities for gaining employment and qualifying for loans, often resulting in higher deposits for services such as cell phones and utilities.
Quite simply, credit invisibility means fewer economic opportunities for these consumers, when, in fact, low- and moderate-income families need more financial options.
"This first-ever national study of CBA's membership has 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 credit bureau, those individuals will benefit through building stronger credit reports and scores," said Dara Duguay, CBA executive director. "Ultimately, a better credit score will help individuals gain increased access to safe and affordable mainstream financial products and build assets."
Key findings from the study include:
Experian said the indicators confirm the relationship between building credit and increasing credit scores, which lowers consumers' risk category and helps qualify them for additional sources of credit. Consumers benefit since an overall more positive credit report tends to result in lower costs of credit.