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Why financial health matters

Published: June 29, 2016 by Kerry Rivera

financial-health

His car, more than 10 years old and not worth salvaging, was in the shop again. Time to invest in something new – or at least “new-ish.” He headed to a local dealership, selected a practical model and applied for financing.

“We can’t give you a loan,” said the manager. “Your income is not high enough, but perhaps if you bring in a co-signer …”

Denied.

Her college degree hung on the wall of her childhood bedroom. In the months since she celebrated graduation with family and friends, she landed a job, but not one providing enough income to cover rent, a car payment and her hefty student loan payments.

“I didn’t realize my payments would be so high,” said the woman. “I don’t know how I’ll ever climb out from under this debt and start my life.”

Stalled.

His attempt at applying for a bankcard, much needed to begin the journey of establishing credit in the country, was met with failure.

“We can’t find any credit history on you,” says the lender. “Try again in the future.”

Invisible.

These stories are all too common in America.

A lack of financial education, coupled with a few poor choices, can derail an individual’s financial trajectory.

More light has certainly been shone on the topic of financial education and the importance of making smart credit decisions from a young age, but there is no nationwide financial education program offered in schools, and many parents feel ill-equipped to handle the task.

Consider a few of these numbers:

  • 71 percent of college grads recently surveyed by Experian said they did not learn about credit and debt management in college, giving their schools an average grade of “C” when it comes to preparing them to manage credit and debt after college
  • The latest “State of Credit” revealed the average debt per consumer is $29,093
  • 39 percent of newlyweds say credit scores is a source of stress in their marriage

Money management is tough, and we expect people to just figure it out. But clearly, that’s not working.

So we need to think about the world of credit differently. As Experian says, we need to treat it as a skill. We need to practice and learn and adjust.

As you get better at credit, it opens doors, creates opportunities, and enables people to live the lives they wish to live. Suddenly, you can get the car loan, move out, have access to credit cards, and manage it all responsibly. In other words, you claim financial health.

On the other hand, if you don’t work at this skill, a lack of financial health ensues. Unruly amounts of debt, irregular income and sporadic savings create stress, resentment and pain.

Increasingly, more financial institutions are boosting efforts to educate about credit. Schools are exploring curriculum to talk finances and inject real-life money management scenarios into everyday lessons. Millennials are seeking transparency around credit transactions.

The more financially healthy consumers we have in this country, building credit skills, means overall economies will grow.

So yes, financial health matters. It matters to individuals, to lending institutions, to retailers and to communities big and small. Building those credit skills is essential. Your health depends on it.

Related Posts

New challenges created by the COVID-19 pandemic have made it imperative for utility providers to adapt strategies and processes that preserve positive customer relationships. At the same time, they must ensure proper individualized customer treatment by using industry-specific risk scores and modeled income options at the time of onboarding As part of our ongoing Q&A perspective series, Shawn Rife, Experian’s Director of Risk Scoring, sat down with us to discuss consumer trends and their potential impact on the onboarding process. Q: Several utility providers use credit scoring to identify which customers are required to pay a deposit. How does the credit scoring process work and do traditional credit scores differ from industry-specific scores? The goal for utility providers is to onboard as many consumers as possible without having to obtain security deposits. The use of traditional credit scoring can be key to maximizing consumer opportunities. To that end, credit can be used even for consumers with little or no past-payment history in order to prove their financial ability to take on utility payments. Q: How can the utilities industry use consumer income information to help identify consumers who are eligible for income assistance programs? Typically, income information is used to promote inclusion and maximize onboarding, rather than to decline/exclude consumers. A key use of income data within the utility space is to identify the eligibility for need-based financial aid programs and provide relief to the consumers who need it most. Q: Many utility providers stop the onboarding process and apply a larger deposit when they do not get a “hit” on a certain customer. Is there additional data available to score these “no hit” customers and turn a deposit into an approval? Yes, various additional data sources that can be leveraged to drive first or second chances that would otherwise be unattainable. These sources include, but are not limited to, alternative payment data, full-file public record information and other forms of consumer-permissioned payment data. Q: Have you noticed any employment trends due to the COVID-19 pandemic? How can those be applied at the time of onboarding? According to Experian’s latest State of the Economy Report, the U.S. labor market continues to have a slow recovery amidst the current COVID-19 crisis, with the unemployment rate at 7.9% in September. While the ongoing effects on unemployment are still unknown, there’s a good chance that several job/employment categories will be disproportionately affected long-term, which could have ramifications on employment rates and earnings. To that end, Experian has developed exclusive capabilities to help utility providers identify impacted consumers and target programs aimed at providing financial assistance. Ultimately, the usage of income and employment/unemployment data should increase in the future as it can be highly predictive of a consumer’s ability to pay For more insight on how to enhance your collection processes and capabilities, watch our Experian Symposium Series event on-demand. Watch now Learn more About our Experts: Shawn Rife, Director of Risk Scoring, Experian Consumer Information Services, North America Shawn manages Experian’s credit risk scoring models while empowering clients to maximize the scope and influence of their lending universe. He leads the implementation of alternative credit data within the lending environment, as well as key product implementation initiatives.

Published: November 18, 2020 by Laura Burrows

Experian released the 11th annual state of credit report, which provides a comprehensive look at the credit performance of consumers across America.

Published: October 20, 2020 by Stefani Wendel

This is the third in a series of blog posts highlighting optimization, AI, predictive analytics, and decisioning for lending operations.

Published: May 20, 2020 by Jim Bander

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