How Twin Accounts™ Builds Credit, Saves Money
A bad credit rating – or no rating at all – is a serious barrier to financial independence, while a good credit history and credit score can pave the way to better jobs, easier apartment-hunting and lower interest rates.
Recognizing the need for a quick and effective tool to build positive credit, LISC Chicago developed LISC Twin Accounts™, which helps low- to moderate-income individuals build credit and save money at the same time.
LISC offers Twin Accounts through its network of Financial Opportunity Centers (FOCs) through its financial partner, Justine Petersen Housing & Reinvestment Corporation, based in St. Louis, MO. The Twin Accounts product is now available in five states: Illinois, Michigan, Minnesota, Ohio and Texas.
How it works
Participants in Twin Accounts are issued a 12-month, $300 loan, the proceeds of which are immediately transferred by Justine Petersen into a “locked” savings account, where those dollars remain until the loan is paid off. Justine Peterson maintains a master savings account with Citibank, and deposits the proceeds of each loan into a sub-account in the client’s name. Participants then begin to make monthly payments of $26.24 each, which Justine Petersen reports to the major credit bureaus.
A key component of the program is that LISC matches each monthly payment – dollar for dollar – as long as it gets to Justine Petersen on time. The match is critical for two reasons – it makes Twin Accounts more attractive to participants who might otherwise not see the benefits of credit building, and it rewards a critical credit-building behavior: on-time payment of current, reported debt.
To be eligible, individuals must 1) want to build credit, 2) have sufficient net income to cover the $26.24 monthly loan payment, 3) have few, if any, active credit cards or lines of credit; and 4) have either no credit score or a low credit score at program entry. Participants must work with a LISC-supported financial counselor who is also a certified credit-building counselor* at a participating Financial Opportunity Centers.
At the end of the loan term, participants who make 12 on-time payments have $300 in savings and $300 in match funds. They also have improved credit, as the credit bureaus have 12 months of on-time payments reflected in the new credit score.
Interest on the 12-month loan is 9 percent fixed for the term of the loan (rates vary by state), with the match paid at the end of the loan term.
Clients who are “unscored” at program entry typically generate a FICO credit score of 676 within six months (if all six payments are made on time). More importantly, among the 220 participants in the program to date, 82 percent have paid off the loan in full. Two thirds have made all of their payments on time.
To make sure participants can continue building credit beyond the 12-month loan term, LISC limits the use of match funds to one option: the opening of a secured credit card. Prior to enrolling in Twin Accounts, participants must agree that at least $300 in savings or match (not everyone earns the full $300 in match) will be used at the end of the loan term to open a secured credit card.
The first iteration of Twin Accounts was developed with guidance from Credit Builders Alliance in Washington, D.C. It was offered for the first time by the North Side Community Federal Credit Union in Chicago. In April 2012, LISC transitioned Twin Accounts to Justine Petersen Housing & Reinvestment Corporation, based in St. Louis, Missouri.
In 25 cities across the country, LISC-supported Financial Opportunity Centers (FOCs) offer three integrated services aimed at helping low- to moderate-income families build financial security. The services include: 1) help to find a new or better job, 2) help to access public benefits for which the participant is eligible, and 3) one-on-one financial counseling. The Local Initiatives Support Corporation (LISC) is a national non-profit dedicated to helping community development organizations build healthy, stable neighborhoods.
For more information on LISC Twin Accounts, please contact Ricki Lowitz, Director of Economic Opportunities - LISC Chicago at (312) 422-9559 or firstname.lastname@example.org.
*LISC relies on Justine Petersen to train and then certify financial counselors on their credit building knowledge. Financial counselors have to pass this test (be certified) before they can approve clients for LISC Twin Accounts.
Learn more about Twin Accounts
Dolores Mederos used Twin Accounts to bump her credit score from zero to 699, according to the Chicago Reporter article, Credit Check.
The Center for Financial Services Innovation in 2014 released a detailed study of credit building and Twin Accounts at LISC Financial Opportunity Centers.
How the Safer Foundation and Twin Accounts helped a participant in Chicago build a more stable life.
A 2011 story by the Community Media Workshop addressed how to build credit in low-income communities.
Posted in Income and Credit-Building