I've been working with a Filene i3 team on a project we've called the Great Credit Race. I jumped on board to help with the concept and all of the design and web development work because the topic is near and dear to my heart—helping young people establish credit. There's no shortage of information, advice and tools out there to help you improve your credit score, but there is virtually nothing to help you establish credit quickly and effectively.
The dilemma for young people is that credit scores are based primarily on your history with credit and of course young people don't have a history with credit!
One of the original directions the team took was to look at an alternative or to augment the established credit score methodology. Look at things like social credibility, health or other indicators versus just straight up credit history. While we believed that there is a big opportunity in that particular area, it became apparent quickly that that is a much bigger project than a six-month pilot.
Instead, the team landed on the concept of playing within the established credit score methodology and trying to legitimately game the system. From this, the Great Credit Race emerged.
Here's the premise of the "race"
After the invention of the credit score, the world of obtaining credit was forever changed. Fair or not fair, your ability to obtain financing, rent an apartment, get a cell phone, and even get a job, may all depend on that score. And here’s the catch 22, it’s really hard to get credit if you have no credit score. Doesn’t make sense, does it?
That’s why Dupaco Community Credit Union and Del Norte Credit Union has partnered with the Filene Research Institute to crack the code on how someone goes from a credit score of 0 to say a credit score of 760 (which is a great score).
Our research showed that over half of our young adult do not have a credit score. We want to change that.
Credit cards are a great way to establish credit quickly. Credit reporting bureaus put more weight on a revolving account than an installment (car loan type) account. We're not sure why, but those are the rules. By issuing a credit card with a small limit we hope to achieve several things:
- Teach young adults how to use credit wisely.
- While helping them create a score.
- And build loyalty with the credit union.
Here’s how it works
- Must be a member of the credit union.
- Must have the ability to make the minimum monthly payment on the VISA card.
- Must have a credit rating of 0 or no rating at all.
The Visa card
- $500 limit.
- If during the race the minimum monthly payment is missed, they are excluded from the race and the card will be pulled.
- Once we have reached 20 qualifying participants the cards will be ordered and that will signify the beginning of the race.
- The race will last for 180 days (approximately six months).
- There will be no instructions from the credit union on how to use the card or where they can use it.
- The only rule is don’t miss a payment and don’t go over limit.
- On the last day of each month, the credit union will do a soft pull of a credit score. This should not adversely impact racers' scores.
- The winner will be declared by the participant with the highest credit score on the 180th day of the race. The credit union will verify the score using a recognized credit reporting bureau.
- The Credit Racer with the highest score will receive a check for $500.
- In the case of a tie, the two will have a one-month run-off.
Where we're at
Racers at both credit unions have been recruited, card have been issued and we're in the waiting period before the first credit pull. The team is presenting the project at Filene's Big.Bright.Minds conference at Princeton University in New Jersey in early October.
An interesting variable in the two races is Dupaco is running its race with real names and photos and reporting on ranking only while Del Norte is running its race with made-up names and photos and reporting on actual scores. We'll see which format works best.
It's been a great experience being an "honorary" i3er for a few months and I look forward to seeing how this concept can have an impact on young people's lives.
Tim McAlpine lives in Chilliwack, British Columbia, Canada. He is the President and Creative Director of Currency Marketing, an integrated marketing agency specializing in helping credit unions attract the next generation of members. Tim is best known as the creator of Young & Free and CUES Next Top Credit Union Exec, and co-creator of the CU Water Cooler.