By Regina Varolli
Sunday, May 16, 2010
The Kentucky Domestic Violence Association's microloans are truly micro; between just $200 and $800. But they are interest-free and monitored by Experian and TransUnion, giving borrowers a chance to build their credit profile in the process.
In the Kentucky program women make contributions to an "individual development account" for at least six months before qualifying for a micro loan that can be no more than the amount in the individual development accounts. The accounts serve as the borrower's collateral, with their deposits matched by money from Allstate Foundation grants to the Kentucky organization's economic empowerment project. Accounts can grow to a maximum of $6,000, with $4,000 of that coming from the Allstate funds.
Among the 41 recipients of the Kentucky Domestic Violence-Allstate program, about one quarter began with no credit history.
In a year of lending, approximately 15 borrowers have increased their credit scores by 50 points. Two have increased scores by 105 and 126 points. Only three women have missed payments on the loans.
"The biggest improvement in credit scores we see are when a borrower uses our microloans in conjunction with other forms of credit such as a credit card," said O'Doherty. "We see the biggest jump in scores when they make payments on time to all creditors, including the domestic violence organization."
When a borrower misses payments it must be reported, but no penalty exists, said O'Doherty. After three consecutive missed payments, the Kentucky group simply pays off the remainder of the loan from funds in the borrower's savings account and reports the loans as paid back early, in full.
"Missed payments don't have as negative an impact on credit scores as defaults do, and because of how we set up the program, no women will ever default," explained O'Doherty.
If a borrower repays the loan in full, the money in her individual account is still there, along with the funds that have been matched.
Regina Varolli is a freelance writer and editor based in Manhattan, and the owner of Words by Regina Varolli and Co. She blogs about food at Culinary Sagacity.
Credit Builders Alliance
Kentucky Domestic Violence Association
The Allstate Foundation
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