Building credit is tough. And when you don’t have access to traditional financial resources, it can seem near impossible. How can you establish creditworthiness when you can’t qualify for a credit card or loan? Recognizing the need for credit building opportunities, a number of organizations have stepped forward to provide underserved, low-income folks with innovative tools for building credit.
As passionate proponents of financial literacy, NerdWallet has assembled a list of lenders offering microloans for credit building. These loans are designed specifically to overcome the challenges of building a credit score from scratch. The antithesis of a payday loan, a credit builder loan is an asset-building line of credit reported to credit bureaus. By paying through credit builder loans, borrowers can eventually graduate to more traditional financial products and flexible lines of credit.
The following organizations are unified under the Credit Builders Alliance and demonstrate excellence in innovative credit-building lending.
For Financial Education: Innovative Change$ (Oregon)
For Innovative Change$, credit builder loans are just part of a much broader picture. Understanding that education and options are both essential to bettering financial standing, they offer coaching, workshops, seminars, microloans and IDAs. Their approach relies heavily on spreading financial literacy, an effort which we admire and salute. By disseminating vital knowledge along with stellar financial products, IC$ has already originated over $162,000 in loans in 2 short years.
For Dedication to the Native American Community: Four Bands Community Fund
Serves the Cheyenne River Indian Reservation in Eagle Butte, SD
The Four Bands Community Fund is a force of financial benevolence in the Cheyenne River Indian Reservation. By bringing Lakota values into the realm of modern entrepreneurship, the organization helps develop sustainable small businesses and spread financial literacy. Before borrowers can apply for a small business loan, they must first obtain a Step-Up loan to build credit and establish a history. After completing a personal finance training program, they can apply for a $3,000 loan to take care of delinquent accounts and access business loans. Their dedication to the Reservation deserves recognition.
For Unsurpassed Innovation: Intersect Fund
Operating in New Brunswick, NJ
The Intersect Fund offers one of the coolest credit building packages we’ve ever seen. In addition to a $200 installment credit builder loan, their “JumpStart Loan” comes with a $200 line of credit with Intersect and a $200 secured credit card with Capital One. Not only does this mean more available avenues of credit building, but it also helps no-credit borrowers immediately initiate a relationship with a big bank. The Intersect Fund is also extremely tech savvy, allowing applications to be submitted via student workers with iPads in just 2-3 minutes. As far as innovation goes, these guys take the cake.
For Disability Aid: Washington Access Fund
Operating in Washington State
The Washington Access Fund provides credit-building Assistive Technology Loans to people with disabilities in Washington, primarily serving individuals at or below 80% of the state median income. These much-needed loans can be used for “any device that maintains or enhances the functional capabilities of a person with a disability,” covering the gaps left by insufficient private health insurance. Common purchases include hearing aids, vehicle adaptations and mobility equipment. It’s difficult to point to a more noble lending cause. Good job, guys.
For Aspiring Homeowners: Justine Petersen
Operates in St. Louis, MO
Justine Petersen performs a crucial service by helping low- and moderate-income families become homeowners by building credit and increasing eligibility for affordable mortgage products. The credit builder loan, which is reported to TransUnion and Experian, is supplemented by financial education. The website offers an excellent resource for education, providing raw information as well listings of financial literacy classes and webinars.
For Fighting Poverty: Chautauqua Opportunities
Operates in Chautauqua County, NY
Chautauqua Opportunities battle poverty at its core, striving to foster long-term, sustainable financial security. Their credit builder loan program fulfills a simple and essential need: funding for home appliances. Can you imagine raising a family with a stove or refrigerator? Such is the state of many of their borrowers. These microloans go a long way to improving quality of living amongst the impoverished while simultaneously providing opportunity for better credit. We admire Chautauqua for addressing needs so basic yet so vital to creating a livable home environment.
For Revolutionizing Payday Loans: North Carolina State Employees Credit Union
Operates in North Carolina
When payday lending was banned in North Carolina, the North Carolina State Employees Credit Union became the state’s primary lender of similar loans. Offering “Salary Advance Loans,” NCSECU has revolutionized payday lending, eradicating the predatory nature rife throughout the business. These credit-building loans are cheap and fair and require a Salary Advance Cash Account into which 5% of every advance is placed. It’s essentially a mandatory savings account to get borrowers practicing smart financial habits. Innovative and impressive.
For Peer Lending: Mission Asset Fund
Operates in San Francisco, CA
Working right next to the NerdWallet office, the Mission Asset Fund formalizes “Cestas Populares,” which are peer lending circles among low-income immigrants. Members of these circles make a monthly contribution and take turns receiving loan sums. MAF took this peer lending model and set up a secure system through Citibank. Participants make deposits through open bank accounts, and the bank distributes loans accordingly. Members must attend a Credit 101 class before joining and are required to attend a financial literacy class every 2 months. NerdWallet is proud to called the Mission Asset Fund our neighbor.
For Encouraging Savings: People’s Federal Credit Union
Operates in Oakland, CA
Another NerdWallet neighbor, the People’s Federal Credit Union offers Fresh Start Loans to Oakland residents. The goal of the loan is two-fold: to build credit and to build savings. Fresh Start employs an innovative payment model to combine these two vital goals. The credit union opens a savings account for the borrower, depositing the full requested loan into the account. The borrow “purchases” the savings account through monthly installments. If need be, the borrower can close the loan early and withdraw the amount thus far paid, but it is not recommended. NerdWallet offers a round of applause for creating a credit-building opportunity through simple savings.