February 11th, 2014
Amassing credit may help the country’s poor
Life without credit is not only expensive; it’s also potentially ruinous. The most desirable apartments are off-limits, because their landlords run credit checks. Without credit, you have to make large deposits to turn on your electricity or gas or to put your phone bill in someone else’s name. If you want to buy a car, and you have good credit, a $10,000 loan might cost you $1,300 in interest. With bad credit, you’ll pay $7,600. If that car breaks down, a $500 expense might mean a crushing payday loan, or even a lost job...
Yet saving and responsible borrowing, Lowitz realized, amount to the same thing: putting aside small sums to reach a goal. So she took the type of matched savings account that is used to encourage low-income people to save and tweaked it into something called Twin Accounts — the sort of loan that Shavers received — which builds both savings and credit. “I thought that people who were poor paid more for everything, and that’s absolutely not true,” she says. “It’s people with poor credit.” Eugene Reese, a 38-year-old candy-factory worker who just paid off his Twin Accounts loan, remembers trying to buy a $6,500 Cadillac. Another customer had $500 and a credit score above 700. Reese had $2,800, but no credit. The other guy got the car. “It made me realize that saved money — you might as well just keep it under your pillow,” Reese says, “because it doesn’t really matter anymore.”