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Twenty-six-year-old Chelsea Renier doesn’t have bad credit. She just doesn’t have much credit.
With the help of Santa Maria Community Services, the single mother has worked her way to a GED and into a job paying more than minimum wage. She dreams of buying a house somewhere in a good school district. But first, she has to improve her credit score.
“It wasn’t terrible. There was just nothing there,” Renier said.
Santa Maria has helped Renier in a variety of ways, including financial coaching, but the organization didn’t have a loan program that could help build that credit score.
Local Initiatives Support Corp. (LISC) of Greater Cincinnati and Northern Kentucky covered the costs for two local nonprofit organizations, Santa Maria and Brighton Center in Covington, Ky., to partner with Mission Asset Fund and start lending circles. The zero-interest loan program brings together people like Renier — those working to build or improve credit and increase their financial stability — to pool their money for the benefit of all.
Lending circles happen informally and organically all over the world, allowing people with low income and no or little credit to work together to provide each other with the money they need. Mission Asset Fund, a San Francisco-based nonprofit organization, in 2007 formalized this concept and reports participants’ payments on the zero-interest loans to credit bureaus. They chip in money, they build their credit.
“I feel like I’m putting my money into someone else’s hands, someone who would distribute it to people in my same situation,” Renier said. “There was just a bunch of us who needed each other.”
Brighton Center launched its lending circle in January. Seven people agreed to chip in $50 each month over seven months. One person each month will receive $350.
In March, Renier and another six people set up a lending circle through Santa Maria. They agreed to each throw in $100 each month, making the monthly payout to one person $700.
Beforehand, each participant went through financial screening and education.
“We want this to be a peer support group as well,” said Thanapat Vichithot, who manages the Santa Maria lending circle. “They’re all in the same situation, trying to improve their financial status.”
Both Brighton Center and Santa Maria provide workforce development for people who often are starting with no degrees and no or damaged credit. Even as their clients achieve success— earning a GED or advanced certification, securing a job above minimum wage —many have no safe way to build credit, struggling to secure anything beyond high-interest payday loans.
Santa Maria purposely included two staff members in the first lending circle as a way to build buy-in for the new service, Vichithot said. “And the more stable our staff is financially, the better they can help our clients.”
Santa Maria Development Director Nune Sargsyan was eager to participate in the lending circle because, growing up in Armenia, she saw her mother use informal ones. “That’s how she saved for our summer vacations.”
Meeting with the rest of the lending circle participants and deciding on the amount and timing of each person’s payout was a simple, welcoming process, Sargsyan said.
“One person said, ‘I can’t go more than $100 (a month).’ I had in my head the same idea,” Sargsyan said. “It’s a little stretch, but that’s what I comfortable with, and everyone agreed on it easily.”
When Sargsyan takes her $700 share in May, she plans to use it either to pay down her car loan or surprise her brother by buying a plane ticket to visit him in Armenia.
Meanwhile, Renier plans to send her share directly to her house savings account. She already is wondering when she can participate in another lending circle.