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Building credit where it's needed

Preliminary findings from an independent evaluation by Economic Mobility Corp. show LISC’s approach to improving financial stability for low-income families and individuals “holds promise.” Researchers found that clients who receive services from LISC’s Financial Opportunity Centers, were significantly more likely to pay their bills on time. They also found that “financial counseling should begin early” in workforce development, and that credit building could be a “crucial tool” in such programs.

The excerpt below is from:
"Building Credit Where It's Needed: Why Workforce Programs Should Focus on Credit"
by Mark Elliott & Anne Roder, Economic Mobility Corp.

"Building Credit Where It's Needed: Why Workforce Programs Should Focus on Credit"

When Eugene R. was released from prison in 2012, he went to several organizations to look for help getting a job. All of them turned him down because of his record—except for the North Lawndale Employment Network (NLEN), whose U-Turn Permitted program is specifically designed to help ex-offenders. After he completed the four-week program, Eugene was hired as a receptionist at NLEN, making minimum wage.

By living with his mother, Eugene was able to save some money and soon had his heart set on a 2005 Cadillac CTS. “I had been saving my money to buy a car. I went to the dealership and I was telling the guy I had $2,500, but he wouldn’t let me walk off the lot with that car because I had no credit. He turned me down and the very next day he sold the car to someone else with only $500 down.”

Eugene had not taken advantage of NLEN’s financial counseling program, but now he realized he needed to improve his credit. “You can have all the cash you want, but it is not going to matter if you have no credit.” He enrolled in NLEN’s Twin Accounts program (see description below) and began making monthly payments on a loan to improve his credit. Within six months Eugene had moved from being unscored to having a prime score of 677, and once again he began looking to buy a car—which he now needed desperately to replace the aging Ford Taurus that he used to commute to his new job at a candy manufacturer outside of Chicago, about 30 minutes from home by automobile, but nearly impossible to reach by public transportation.

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In 2010, with support from the MacArthur Foundation and the Social Innovation Fund, Mobility began a rigorous evaluation of LISC’s version of the CWF strategy, called Financial Opportunity Centers (FOCs). The evaluation focuses on the work of five Chicago community groups: Instituto Del Progreso Latino, the Cara Program, Association House, Metropolitan Family Services, and the North Lawndale Employment Network. When Mobility began the evaluation, most of the organizations had been implementing the model for a few years and were regarded as among the strongest of the 11 LISC-supported Financial Opportunity Centers in Chicago.

FOCs strive to help individuals achieve several goals: becoming consistently employed, improving their FICO credit scores, and increasing net income and net worth. FOCs provide individuals with a combination of financial counseling, employment assistance, and help accessing public benefits to supplement income from work. The FOC model stipulates that the three core services work best when they are integrated. Organizations first seek to help participants achieve positive net income by becoming employed, obtaining public benefits, and reducing expenses. FOCs then try to engage participants in credit-building activities in order to improve their credit scores, which, in turn, are expected to further help them reduce expenses, access low-cost forms of credit, and build wealth.

Much of the data for this brief comes from Mobility’s interim evaluation report, which focuses on FOC participants’ credit profiles one year after program enrollment. The analysis of program impacts uses propensity score matching with a comparison group of people who were seeking assistance with employment and training from the city of Chicago’s workforce centers during the period FOC participants were enrolling. Study enrollment took place from October 2011 to August 2012. Continued[+]...