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Collection: Financial Literacy Updates
Have a financial literacy event worth noting? Rolling out a new financial education initiative or product? Contact OCC Community Affairs.
The Office of the Comptroller of the Currency's (OCC) Financial Literacy Update is a quarterly e-newsletter that lists events, initiatives, and other resources offered by the OCC and other government agencies and organizations. (View disclaimer)
Strong credit is an asset to a customer’s personal financial well-being and can be an asset to banks. Since lending is an important revenue stream for banks, it is beneficial for banks to recruit and maintain customers who can borrow and repay loans on time. Banks can also help customers improve their credit reports to increase their credit scores, thereby improving the customer’s ability to borrow from the bank.
Low credit scores are detrimental to customers as they may qualify for less credit, the credit may be more costly, or they may be denied credit. It can also be detrimental for banks as their customers may turn to nonbank alternatives for credit cards and lending needs, resulting in lost business for the bank.
Banks increasingly recognize the benefits of helping improve their customers’ credit scores so they can obtain credit from banks.
There are several ways banks can help their customers strengthen or obtain their credit reports and scores.
Credit-builder credit cards, also known as secured credit cards, are a tool for establishing and building credit. These credit cards require a refundable security deposit up front, which is used as collateral for the customer being issued the card. The credit line will usually match the amount of the refundable deposit. The customer makes regular on-time payments, which are reported to the consumer reporting agencies. The deposit should be refunded when the account is closed (paid in full) or to offset the balance in the event of a default.
The customer can use the card up to its credit limit, but as with most types of credit cards, it is best to use less than 30 percent of the credit limit to keep the utilization rate low and help maintain a strong credit score. Using the card responsibly helps customers build a relationship with their bank and improve their credit scores.
Some banks offer credit-builder loans that help customers establish or improve their credit reports and scores. These are usually fixed-rate loans ranging from a few hundred to a few thousand dollars with terms of 1–5 years and minimal origination and service fees. These loan funds are placed in interest-bearing savings accounts or certificates of deposit for collateral. The loan accrues interest, and the customer is responsible for making payments.
The lender may release the funds when payments are made, or depending on the loan terms, it may hold the total loan amount until all payments have been made. The customer draws from the loan in the customer's account each month to repay the loan. If the customer uses the loan to pay on time each month, the bank reports the on-time payments to credit bureaus. As the customer satisfactorily fulfills the loan terms and obligations, this helps establish or improve the customer's credit reports and scores. The customer may pay off the loan early, but if the customer defaults on the loan, the bank can demand payment of the entire loan, which can damage the customer's credit.
Credit-building training and coaching include counseling and educating customers and the bank's community on ways to build, improve, and maintain credit scores. Many bank customers may not be aware of simple steps they can take to improve their credit scores. For example, a bank can send payment reminders that mention that on-time payments or, conversely, late payments have a significant impact on a customer's credit score.
Paying 30–90 days late can cause a 50–100-point decrease in credit scores. Research has shown that sending customers digital reminders to pay at least the minimum balance of a credit card before it is 30 days late helps some customers preserve their credit scores.
Banks can give customers information on how to access a free copy of their credit reports from the three largest credit bureaus, including by visiting AnnualCreditReport.com.
Many banks also give customers the opportunity to access their credit scores through their bank accounts, often at no additional cost. Banks can educate their customers about this service and why it is important to maintain strong credit.
A credit score simulator is an interactive digital tool that helps customers assess the impact of different financial activities on their credit scores. Banks can share credit score simulator links with customers to educate them on how to maintain good credit. This may help customers before they have credit issues or are denied credit. Additional tools that customers can use for score simulations include the Experian FICO Score Simulator and the Credit Karma Credit Score Simulator (powered by TransUnion).
Consumer education managers in a bank may want to refer customers with significant debt to credit counselors. Banks may have credit counselors on staff who work one-on-one with clients to provide credit analysis and financial education at no charge. Counselors will also help develop personalized budgets that have the potential to put customers on a path to improving their credit.
Banks can also refer customers to the U.S. Department of Justice's list of approved credit counseling agencies. Some organizations may charge a fee for their credit counseling services, but there are nonprofit organizations that offer free services or have a sliding fee scale based on the customer's ability to pay.
A bank may also refer a customer to a professional credit counseling association, such as the National Foundation for Credit Counseling or the Financial Counseling Association of America.
AnnualCreditReport.com This website gives consumers access to free credit reports from three national credit reporting agencies. This is the only official website that is explicitly directed by federal law to provide these reports. Be aware that other websites may charge a fee.
Credit Reports and Credit Scores In this Consumer's Guide, the Board of Governors of the Federal Reserve System answers commonly asked questions about credit reports and how errors in credit reports can be corrected.
CreditSmart Freddie Mac's suite of educational resources is designed to provide consumers and financial professionals with skills and knowledge related to financial capability and homeownership needs.
Federal Reserve Education This website contains free, classroom-ready economics and personal finance teaching resources from Federal Reserve Education (FRE) and includes new, easy-to-use formats for Canvas, Google Classroom, and Schoology. It also contains information on how financial literacy educators can become certified to coach others on these credit materials.
Pro Bono Planner Match The Foundation for Financial Planning's ProBonoPlannerMatch.Org connects nonprofits with financial planners who want to provide free financial guidance and advice to underserved populations. Nonprofit organizations can register and post volunteer opportunities for financial planners on the site.
The information in the Financial Literacy Update was obtained from publicly available sources. Inclusion of a non-OCC event, activity, product, or hyperlink in this newsletter does not constitute an endorsement by the OCC. The OCC does not exercise editorial control over any of the information in non-OCC websites and cannot guarantee the accuracy of the information.
