Two big challenges facing many low-wealth families are poor credit scores and the lack of savings to address emergencies or other longer-term goals. The Local Initiatives Support Corporation (LISC) and Financial Health Federal Credit Union in Indianapolis have teamed up to do something about that. Working closely with financial coaches in the Centers for Working Families network, the partners launched Twin Accounts.™
Borrowers must be in an active coaching relationship, with a clear set of financial goals, and have the ability to pay $25.00 per month. The borrower takes a loan for $300 which is immediately deposited into a “locked” savings account. The loan is paid in twelve monthly installments at a very low interest rate and payments are reported to the major credit bureaus.
Each timely payment is matched.
The matching dollars came originally from a grant managed by LISC. United Way of Central Indiana (UWCI) has recently joined the effort as part of their overall investment in Centers for Working Families. At the end of the term, the borrower has up to $600 which can be put away, used to pay down debt, or applied toward a secured credit card. In the past three years, 59 accounts have been opened with a successful closure rate of 91%. The average pre-program credit score was 465, with a post-program average of 606. Unscored borrowers saw the most dramatic gains, with an average post-program score of 640.
Kendra, working with her coach at Hawthorne Center for Working Families, had a goal of buying a home. She completed the program and was able to purchase a home by improving her credit and applying Twin Account funds toward closing costs. Early evidence indicates that Twin Accounts and similar products can be powerful tools for helping families grow wealth, build credit, and improve their financial capability.