Expanding who is able to access and benefit from the credit system

Credit: Expanding Opportunity

ideas42 is embarking on a new three-year initiative, working with mission-aligned partners to improve and build solutions to unlock and expand credit opportunity for consumers with sub- and near-prime scores, with a focus on those with low-to-moderate incomes. The new initiative, Credit: Expanding Opportunity (C:EO), will support these consumers to better protect and improve their credit, expanding who is able to access and benefit from the credit system and enabling individuals to build and maintain financial health and lead lives of their own definitions.

Credit and credit scores are essential elements of American financial life. Short-term credit allows people to manage their cash flows and respond to shocks. Over the longer term, credit allows small business owners to start and grow successful businesses that serve their neighborhoods and provide employment opportunities, often based on their personal credit scores. It also allows people to accumulate wealth through homeownership. However, access to these benefits often depends on a credit score, with a lower score making accessing credit more hassle-filled and expensive.

The impact of a subprime score is especially felt by people with low-to-moderate incomes, who navigate their day-to-day lives on tight budgets. An expensive payment on a loan can mean delaying other important needs because liquidity-constrained consumers don’t have enough money to do both at once. These difficult decisions may further lower scores and can compound historical patterns that lead to some groups being disproportionately burdened with lower credit scores, like communities of color. A low credit score can also serve as a barrier to renting an apartment or accessing a better paying job. In addition, people with lower incomes experience larger and more frequent dips in income, and are less able to rely on savings to help them cover these, which can make credit an especially important financial management tool.

While many organizations are tackling these challenges, with notable recent progress for unscored or credit invisible consumers, the credit system remains complex and its benefits often inaccessible for many consumers. Fortunately, there are many organizations and experts working to address inequities around credit access and use – from brick-and-mortar institutions and fintechs to nonprofit and community organizations. Advocates and policymakers are also working to improve the enabling environment for more people to access appropriate credit and demonstrate their ability and willingness to manage it.

However, many products, services, and policies face similar, recurring, challenges around uptake and engagement. ideas42 has a long track record of employing evidence-based behavioral design strategies to improve financial health outcomes. Through this initiative, ideas42 will unearth and address barriers that limit individuals’ ability to access and use fair, appropriate, and affordable credit products and build their credit scores. In C:EO’s first year, ideas42 will provide tailored support to up to six organizations piloting innovations to protect and improve credit, aiming to ensure that helpful, impactful products, services, and policies meet their potential. In subsequent years, this grant will highlight the integrated nature of credit as a gateway to economic mobility and wealth creation opportunities, including homeownership and entrepreneurship. Through this work, ideas42 will leverage behavioral science to design and test solutions that unlock and expand credit opportunities for two million consumers on their journey to financial resilience, wellbeing, and wealth, informing product and policy development to advance a more inclusive and equitable credit ecosystem.

To learn more about C:EO, contact us at financialhealth@ideas42.org

This work is supported by JPMorgan Chase & Co.