The Credit Path
As Alternatives Credit Union has grown and changed, our use of the Credit Path model of financial empowerment has changed as well. Originally developed by Bill Myers as a way of understanding our members’ financial situations and incorporating that into our business planning, the Credit Path describes where people are situated at various points along a continuum between poverty and self-sufficiency. Our job, as a community development financial institution, is to help our members move along that continuum by empowering them to make decisions, and offering opportunities, that will move them towards financial self-sufficiency.
The Credit Path model has provided Alternatives with guidance in designing products and services to meet members’ needs at their different points along the path, and help them progress towards successful asset ownership. Over the years since the Credit Path model was developed, government policies have moved the country towards greater financial inequities. The growth of predatory lending practices has made it more difficult for low-income families to move along the path.
As shown in our drawing of the Credit Path, progress can be slow, and missteps can prevent people from moving ahead. We’ve found that financial education—developing spending and savings plans, acquiring business skills, planning for home ownership--- is often the key to helping members move more swiftly, but securely, through the process of building financial strength without unnecessary risk. Financial education combined with access to capital creates a powerful combination.
We are now moving towards development of the Credit Path as a replicable model that other organizations can use to help promote financial advancement for their members. We are working with national funders on research projects which will provide rigorous evaluation of the Credit Path, so that the experience we’ve gained over the last 24 years–and conceptualized in the Credit Path--can lead to systemic improvement in the community economic development field.
We see our members moving along the Credit Path in stages:
Transactor: For our poorest members, those who are new to the banking system, immigrants, and others who need access to basic financial services. Transactors need to cash checks, purchase official checks, get change, or wire money to others. As banks charge more for these services, transactors turn to fringe financial providers, such as check cashers, and pay high fees. We price these services to be affordable to members, but sustainable to the Credit Union. In 2003 we added a free tax preparation service for low-income earners, with the hope of introducing previously unbanked people to the fair (and friendly) services of the Credit Union.
Saver: We provide incentives for this traditional credit union market by paying interest on all accounts with a $5 minimum balance and charging no monthly fees. We offer special Savers Certificates with a minimum of $100. Individual Development Accounts (IDAs) significantly expand the likelihood of success at this stage by providing both a savings match and financial education.
Borrower: Responsible borrowing is a financial tool that can lead to greater wealth. We help our members develop good credit records by offering several “starter” loans, including the Alternatives Debit Card (with attached Line of Credit), Credit Builder Loan and Community Partnership Loans. New in 2003, a short-term loan for those who used our free income tax preparation services and wanted quick access to their tax refund. One of our goals is to help members avoid the high rates and endless refinancing of predatory lenders. Much of our lending at this stage is consumer lending: cars, personal loans, VISA cards and lines of credit. As members handle these loans successfully, they can build up to larger amounts.
Owner: Learning to save and developing a good credit record help people move towards becoming owners of homes or businesses. We offer a variety of home and business loan products, many to members who started at the beginning of the Credit Path.