Having knowledgeable and educated members who understand the importance of a good FICO® Score is immensely beneficial to the overall financial health and well being of both your members and your credit union as a whole. Many members mistakenly assume a "good enough" credit score will ensure that they can get a credit card or approved for a mortgage or auto loan, and that's "okay enough." Especially younger adults, who are just getting used to the burdens of adulthood, won't think twice about being late on a payment, as they don't understand the impact this has on both their short and long term financial health. Your credit union's role in the matter of credit scores is teaching your members that just okay is not okay. Here are some points to hit home with members on why they should pay attention to their credit scores, as well as benefits these bring to your credit union.
1. Credit Card and Loan Approval
Member Benefit: This is the most identifiable reason people know as to why they need a good credit score. Without one, they may not get approval for an auto loan or open up a credit card. Depending on their stage in life, they may be worried about a mortgage or a HELOC. Perhaps they want to buy new furniture or pay for a honeymoon.
Credit Union Lesson: The more confident you are in your members' credit worthiness, the less risk you take on. Make a point to explain that your member's score is one of the elements considered in their approval, for better or worse and how they can learn to stay on top of it.
2. Interest Rate Determination
Member Benefit: A member's credit score is considered in the interest rate they will receive on loans, as well as on credit cards. Many times members will see auto loans with attractive rates advertised, but when they receive their approval, they find their rate to be higher, and their monthly payment to be higher as well. The national average for a 60-month new car loan in 2020 is expected to hit 4.75 percent, but few people realize what those numbers mean to their own purchase. Take a look at the chart below from badcredit.org:
Credit Union Lesson: Demonstrate to your members what impact their score has on their overall payment. Show them a chart like the one above so they can see how their actions affect their wealth.
3. Higher Credit Limits
Member Benefit: A member's borrowing capacity is based on their income as well as their credit score. Lenders will be more willing to let them borrow more money, and credit cards will allow for higher limits if they've demonstrated responsible lending and paid back what they have borrowed over time.
Credit Union Lesson: Again, it is beneficial to discuss limits with your members, and explain the factors that contribute to what an individual's spending limit may be. This is especially pertinent when members are looking at buying a starter home. Should a member not receive what they were expecting for a first time home loan, offer to take a look at not only their income, but their credit history so their next home can be a step closer to the home of their dreams.
4. Take Advantage of Special Offers
Member Benefit: Attractive offers, such as 0% APR's on balance transfers and financing options on large purchases, are not available to just anyone. Having a good credit score opens members up to these offers, and also gives them an upper hand in negotiating a loan. The famous tagline from a national lending organization states, "When banks compete, you win." As a borrower, members certainly have more options available to them when they have a better score.
Credit Union Lesson: Reward your members with good credit score offers on HELOC's and balance transfers. You have the data in your core... use it to market these offers effectively.
5. Rental Approvals
Member Benefit: Many people don't know this, but a member's credit history may play a major role in their ability to rent an apartment. Some landlords require a credit check in order to rent, and might deny their rental application if they have bad credit, despite a great rental history and a sizable salary.
Credit Union Lesson: For younger members, who are just starting out and renting, or for metropolitan areas where rentals are more common, the opportunity isn't there for a home loan, but certainly is to provide some exceptional member service and education.
6. Cell Phones
Member Benefit: There is a reason pay-as-you-go phones exist. If a member has bad credit, their cell phone provider will not give them a contract for service. Which means constantly changing numbers and starting over.
Credit Union Lesson: There is nothing that will hit home quite as hard as taking a cell phone away. Stress to younger members who may still be on their parent's plan that they won't always be, and with independence comes responsibility.
7. Avoid Security Deposits on Utilities
Member Benefit: For members who are moving into a new apartment and need to transfer utilities to their name, nothing will sting more than having to put a deposit down on being able to have access to basic necessities such as heat and water. Yet, with bad credit, this will happen.
Credit Union Lesson: Your members may not be planning to move soon, but a natural disaster or an unforeseen circumstance could change those plans quick. Discuss the downfalls of bad credit in those situations.
Maintaining a good credit score, and ensuring credit history is accurate and up-to-date in order to reflect your member's true financial well being, will provide numerous benefits. By relying on the accuracy of FICO® Scores, and giving your members access to view their FICO® Scores, your credit union will ensure loan decisioning, and the resulting member education when things don't go the way a member expects, is a process that minimizes risks for both you and your member.
*FICO is a registered trademark of Fair Isaac Corporation in the United States and other countries.