From 0-750 in 6 Months? It’s MEDA’s Secured Credit Card to the FICO Score Rescue

Secured Card BlogFinancial Capability is a thread that ties together MEDA’s service integration model, as evidenced daily at Plaza Adelante, the nonprofit’s Mission neighborhood center. Whether a client’s goal is to find a job or buy a first home or start a small business, one’s finances being in order is essential.

The Need
Jaqueline Marcelos, MEDA Financial Capability Program Lead, understands the need for a good credit score, having worked with financially challenged clients for years.

“It is important to get credit scores in good shape. People may need a car loan or a personal loan,” states Marcelos. “Plus, with the increased construction in San Francisco right now, that means more below-market rate (BMR) housing units are in the pipeline than usual. Now’s the time to get your credit score in good shape.”

The Challenge
Many clients who walk through MEDA’s welcoming doors have a zero credit score. Yes, zero.

How is that possible? They have neither had recorded monthly payments of any kind nor taken out a loan that would have been paid off in a timely manner, so the individual is off the grid when it comes to FICO scores. Some clients are undocumented, with nothing but an Individual Taxpayer Identification Number (ITIN), as set up by MEDA’s tax team. Others have declared personal bankruptcy and cannot garner a regular credit card. The challenge of establishing credit can seem daunting in such extreme cases.

“Excellent credit is crucial to financial health in the United States, yet so many of us don’t know how this system works or even where to begin. For new immigrants especially, building credit is an extraordinary opportunity to build financial power and upward mobility, regardless of their immigration status,” explains MEDA’s Deputy Director of Asset Building Programs, Mattias Kraemer. “At MEDA, we help people establish and rebuild their credit by combining accessible Secured Credit Card products with individualized, one-on-one financial coaching, helping clients to safely navigate their first steps of many towards prosperous financial futures.”

The Collarboration on Innovation
MEDA needed a bridge to obtaining Secured Credit Cards for its clients. That’s where Community Financial Resources (CFR) of Berkeley came into the picture. This organization “designs and  builds or sources financial products that make it less expensive and less stressful to have low- or moderate-income in the United States.”

CFR reached out to Berkeley’s Cooperative Center Federal Credit Union (CCFCU) and advocated for the creation of a special fiscal product geared to low- and moderate-income clients. CFR’s intervention was critical to the development of the Secured Credit Card.

The Six-Step Action Plan
The following are the six steps to get a MEDA client’s FICO score to acceptable levels via the Secured Credit Card program:

  1. An initial deposit of $200 is put into a savings account at CCFCU. This often occurs after a client has gone through MEDA’s Free Tax Preparation program, with a suggested amount of one half of the refund going toward the Secured Credit Card.
  2. MEDA’s expert Financial Capability team assigns a one-on-one coach for the client. This coach sets up three online accounts: the savings account at CCFCU; an online, recurring payment for an existing bill, generally a cellphone bill because it is generally about $50 a month, just 25% of the $200 initially deposited; and the Secured Credit Card account, with the $200 in savings then transferred to this card as its credit limit.
  3. The client receives follow-up appointments with their coach at three, six, nine and 12 months to ensure compliance with the action plan. Text messages, as reminders of payments due, are sent at regular intervals, too. Some clients can achieve a 750 credit score after only six months, with a good FICO score possible at a mere three months if the client has another credit card in their name that they are regularly paying off.
  4. After graduation from the program (one-year minimum), the client can request a review of their credit and apply for a regular credit card.
  5.  If the client is approved for a regular credit card, savings account funds are made available.
  6. The Secured Credit Card is closed.

The Success Story
Martha was a participant in MEDA’s Financial Capability workshop at partner Family Connections back in April 2013. A month later, Martha came to Plaza Adelante for an initial one-on-one coaching session. She was interested in reviewing her credit report, fearing a medical bill might be in collections; unfortunately, her fears were true, as an $1,800 medical debt showed. Worse yet, Martha’s credit score was zero.

MEDA advised Martha to immediately open a Secured Credit Card with CCFCU. Automatic payments were set up to pay down the medical debt at a rate of $50 per month.

The outcome? Total debt has today been reduced to $1,200, with a FICO score averaging 675 among the three big companies that compile such data: Equifax; Experian; and TransUnion.

In June, Martha will apply for a regular credit card. She is well on her way to financial security thanks to MEDA’s coaching and the Secured Credit Card program.

The Essential Funding Partner
MEDA provides all of its services, including Financial Capability, at no cost. With 5,000+ clients last year, 89% defined as low- to moderate-income, these services need to remain free for these financially challenged, mostly Latino residents of San Francisco’s Mission District.

The Secured Credit Card project is supported by a grant from CFSI’s Financial Capability Innovation Fund II. The Fund is supported by a collaborative of funders led by the Citi Foundation and also including Capital One Foundation, NYSE Euronext Foundation, Charles Schwab Bank, Charles Schwab Foundation and Experian.