"In a world where an individual’s credit score can impact his or her ability to secure employment, rent an apartment, or gain access to other financial products such as insurance, it is critical that a credit report assessment be a part of a survivor’s economic self-sufficiency plan."
Providing Credit Repair Services to Domestic Violence Survivors
Credit Reports and Scores
A credit report provides a snapshot of an individual’s credit history – current and past debts with details about amounts currently owed, amounts paid, payment history, judgments or liens filed, and delinquent and collection accounts. A credit score is a number calculated based on elements in a credit report, and is used by lenders to calculate risk by predicting the likelihood that an individual will pay back his or her debt as agreed. Credit scores are determined by consideration of the following factors: payment history, debt owed, length of credit history, new credit established, and types of credit used.
Debt accrued -- including credit card debt, auto loans, mortgages, student loans and unpaid child support -- will appear on a credit report and negatively affect the overall credit score if debt has not been paid on a regular and timely basis. For more information about all of the elements that go into determining a credit score, see the fact sheet on “Credit Scoring” at http://www.idaresources.acf.hhs.gov/page?pageid=a047000000B7oys.
How can domestic violence survivors benefit from credit repair services?
In a world where an individual’s credit score can impact his or her ability to secure employment, rent an apartment, or gain access to other financial products such as insurance, it is critical that a credit report assessment be a part of a survivor’s economic self-sufficiency plan.
It is not uncommon for survivors to discover debt incurred by their abusive partner on their own credit report. This can occur in a number of ways:
At the point of separation, it is critical that survivors immediately contact credit card companies and have their name removed from the accounts. In addition, regular and careful scrutiny of a credit report can help identify instances where an abuser has accrued debt in this way, and the guidance of a knowledgeable credit counselor can help a survivor correct these issues.
The first step in credit repair is to obtain a copy of the survivor’s credit report which will help her account for debt as well as any collections or legal actions related to her finances. Survivors can obtain a free report once a year from each of the three main credit bureaus (Equifax, Experian, and TransUnion) at www.annualcreditreport.com. These reports do not include a credit score. A credit score can be obtained for a fee at www.myfico.com. There are many different credit scores available to consumers, but the FICO score is the score most commonly used by lenders to determine creditworthiness. This website also contains other tools for financial planning and debt management.
Survivors can learn whether there is any inaccurate information on their credit report and work with AFI or other asset building staff to correct any errors. If they find accurate but negative information, it is important to begin taking steps to repair credit. The negative information will be on the report for up to seven years (and bankruptcy for up to ten years). The steps in credit repair, which include establishing a budget to manage current and future spending, making arrangements with creditors, and saving to start paying down past due debt, are all helpful for overall financial health. For tips on avoiding debt, see the fact sheet on avoiding various forms of predatory lending (http://idaresources.acf.hhs.gov/page?pageid=a047000000B6abX) and the section on “Managing Credit Card Debt” in the Financial Education section of idaresources.acf.hhs.gov (http://idaresources.acf.hhs.gov/page?pageid=a047000000ApiTG).
How can domestic violence agencies and AFI grantees partner to provide credit repair services to survivors?
Domestic violence service providers and AFI agencies can work together to identify individuals in need of credit repair services. For example, domestic violence agencies could refer survivors to AFI agencies for credit counseling. Some AFI agencies provide credit repair services in-house through their staff, or they partner with or refer clients to credit counseling agencies that can provide more personal or in-depth services, such as one-on-one counseling to devise an individualized plan to increase their credit score. In turn, domestic violence providers can help AFI grantees or their partners develop safety plans for survivors who take steps to repair their credit. This can include removing their names from any existing joint accounts and changing passwords on accounts in the survivor’s name.
If debt was obtained through fraudulent means, survivors can work with AFI staff to correct any errors. The creditor may require the survivor to also make a police report regarding the illegal activity. However, the survivor will need to balance reporting to law enforcement against other personal safety concerns; filing a report may increase safety risks that outweigh the financial harms the abuser has caused.
If survivors find accurate but negative information, it is important to begin taking steps to repair credit. The negative information will be on the report for up to seven years (and bankruptcy for up to ten years). Getting other sources of debt under control can help a survivor’s overall financial health. The steps in credit repair, which include establishing a budget to manage current and future spending, making arrangements with creditors, and saving to start paying down past due debt, are all helpful for overall financial health. For tips on avoiding debt, see the fact sheet on avoiding various forms of predatory lending (http://idaresources.acf.hhs.gov/page?pageid=a047000000B6abX) and the section on “Managing Credit Card Debt” in the Financial Education section of idaresources.acf.hhs.gov (http://idaresources.acf.hhs.gov/page?pageid=a047000000ApiTG).
Helping survivors establish credit
Because many survivors have had little or no control over their finances, they may not have any credit established in their name. If possible, establishing a bank account with a mainstream financial institution is often the first step toward establishing credit. Many banks and credit unions offer credit-builder loans that can help a survivor begin to work toward economic self-sufficiency. If she is residing in or receiving services from a domestic violence shelter, it may be possible to use the shelter’s address until she has secured safe housing. Some community service agencies may also offer products designed to help low-income individuals establish or repair credit.
Some financial planning professionals suggest applying for a low-limit credit card at a gas station or major grocery chain; clients would likely be spending this money anyway, but with on-time payments, they can use the credit card to establish or repair credit. Of course, careful consideration should be given to each survivor’s individual situation, especially regarding her family’s safety and her ability to manage loan or credit card payments.
A list of government-approved credit counseling agencies that also provide pre-bankruptcy advice can be found at http://www.justice.gov/ust/eo/bapcpa/ccde/index.htm. For more information about what AFI grantees need to know about credit repair, see the resources at http://archive.acf.hhs.gov/programs/ocs/afi/conferencecalls/credit_repair.htm.
An innovative approach to helping survivors build credit
In Kentucky, a unique program assists survivors in repairing or establishing credit through the use of micro-loans which typically range between $300 and $800. Administered by the Kentucky Domestic Violence Association (KDVA), survivors who also hold Individual Development Accounts (IDAs) can apply for small, no interest loans (secured by IDA savings) and repay them over time. KDVA then reports the loan and the payments to the credit bureaus. While use of the loan funds is not restricted, many survivors use the money to pay off existing or past-due debt, which also improves their credit score. Through this innovative program, survivors have been able to make significant gains in repairing their credit scores.
This is one in a series of fact sheets on asset-building and Domestic Violence Survivors produced by the Assets for Independence Resource Center. For more information about AFI services, visit the resource center website at www.idaresources.acf.hhs.gov or contact the center at 1-866-778-6037 or via email at firstname.lastname@example.org To find an AFI grantee near you, go to http://www.idaresources.acf.hhs.gov/Map. To search for domestic violence programs by state go to: http://www.nnedv.org/resources/coalitions.html. For more information about the safety challenges of survivors or for guidance on developing safety protocols contact the National Resource Center on Domestic Violence at 1-800-.537.2238. For information about how to partner with local or state domestic violence programs contact the National Network to End Domestic Violence at 202-543-5566. Survivors in need of assistance can also call the National Domestic Violence hotline at 1-800-799-7233.