Will improved credit reporting standards help Atlantans?
By John Hope Bryant, Founder, Chairman, and CEO, Operation HOPE, Inc.
According to a recent Forbes report, though Atlanta is named the #14 best place for business in the U.S., its residents appear to have difficulty managing their money responsibly. As the capital city of the state with the worst credit profile in the U.S., roughly a quarter of Atlanta’s residents live below the poverty line. The average credit score is 649; average debt, $30,031; the average balance on credit cards is $4,845, and the average credit utilization ratio stands at 34 percent.
In addition to all of this, thousands of working Atlantans including those at or near the poverty threshold are struggling to pay back taxes. Whether caused by general low earnings and no credits—in Georgia a childless adult working full-time at federal minimum wage (a salary of $15,080) will pay about $1,600 in federal taxes—or, the penalties associated with unplanned 401K withdrawals, owing back taxes limits a person’s ability to save, reduces income if the government garnishes wages and disability benefits, and essentially destroys a credit record.
When the taxpayer fails to pay, burdensome tax liens come into the picture, creating an additional financial hurdle to jump over, especially for those with low to moderate income. A federal tax lien can effectively make it impossible to qualify for a loan or even pass a credit check to rent an apartment.
That’s why the recent move by the national consumer reporting agencies to eliminate two major sources of negative information about borrowers from their records: tax liens and civil judgments, is a step in the right direction to foster inclusion around credit and put those crippled by debt on the path to financial independence.
As of July 1, Experian®, Equifax® and TransUnion® are changing the standards of the public record data they maintain, requiring each citation to include the person’s name, address and either their Social Security number or date of birth. Most civil judgments and tax lien records do not meet the new standards, and will be removed from reports.
About 12 million Americans—7 percent of the FICO scorable population to have a judgment or tax lien removed from their file as a result of the enhanced public record standards, will see a modest lift in their FICO scores. FICO, an Operation HOPE partner, supplies the formula that generates the scores known as FICO scores. In addition, thousands of people who have worked to have incorrect information removed from their files will benefit. The National Consumer Assistance Plan, a comprehensive series of initiatives intended to evaluate the accuracy of credit reports, the handling of credit information and consumer transparency, is at play in the background of the new standards.
A consumer’s FICO score calculation represents his/her credit risk at a moment in time, based on information found on his/her credit report. Errors and outdated information on credit reports like tax liens and civil judgments, translate to a poor score and determines if the individual gets the job; or the mortgage, auto, or small business loan, and how much it will cost to repay it.
No, the new standards will not magically equate to perfect scores for the masses. According to FICO, impacted files are very likely to have additional derogatory information included and therefore will tend to score relatively low, even after the public record data in question has been removed. However, they will represent some breathing room for impacted individuals.
Through workshops and one-on-one counseling, our HOPE Inside financial wellbeing coaches help individuals tackle credit report errors and public record data head on. The Credit and Money Management Program, a core focus of HOPE Inside Adult Empowerment programming is designed to transform disabling financial mindsets—teaching people the language of money, how to navigate credit and make better decisions with the money they have. They learn to create a sustainable future by planning for big expenses, like paying for college, home renovations and funeral expenses for loved ones.
Through the HOPE 700-Credit-FICO-Score-Communities initiative, the focus on raising client FICO scores to 700 and bringing financial uplift to communities, is at the foundation of the Credit and Money Management Program—working to rehabilitate the credit, financial, and overall wellbeing profile of the HOPE client and by extension, the community as a whole. The implementation of the new public record data standards will help to support and drive this.
About Financial Inclusion
Operation HOPE, Inc., powers the broadest financial inclusion network in the country. Through strategic partnerships with organizations like SunTrust Banks, Wells Fargo, and Coca-Cola, the nonprofit is making free enterprise accessible to all by equipping youth and adults with the financial training and tools to realize their aspirations and ensure their financial wellbeing. Through its core programs, Operation HOPE has provided financial dignity and economic empowerment to over 2.6 million individuals worldwide, and $2 billion in economic activity for the disenfranchised—turning check cashing customers into banking customers, renters into homeowners, small business dreamers into small business owners, and minimum wage workers into living wage consumers. Project 5117 is the organization’s multi-year four-pronged approach to combating economic inequality that aims to improve financial literacy, increase business role models and business internships for youth, and stabilize the American dream by boosting credit scores. The Atlanta Uplift 2020 initiative will escalate the organization’s services throughout the city to strengthen low- and middle-income families. For more information: www.OperationHOPE.org
Volunteer with HOPE Corps: http://www.operationhope.org/hopecorps
Learn more about membership levels: https://www.operationhope.org/becomeapartner
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