She is the CEO of Credit Builders Alliance. She’s the former director of city’s office of financial education and has been involved with the issue of financial capability and empowerment for over 25 years. There is a reason why Dara Duguay, is considered a national expert on personal finance and does regularly appeared on many national television and radio networks and is the author of three critically acclaimed personal finance books. She was awarded the Medal of Merit from the U.S. Treasury savings bond volunteer committee and was appointed to the national assessment of educational progress economic steering committee meet the leaders shaping the new era of credit. This is The VantageScore Podcast. Today we talk to Dara Duguay, CEO of Credit Builders Alliance.
I grew up in Illinois outside of Chicago in a very Midwestern town. My mom was an artist and my dad was a principal of an elementary school and my parents didn’t give me any formal education, but that doesn’t mean that they didn’t teach me things through their behavior. My Mom, for instance, was the child of parents who lost everything in the depression, the Great Depression. And so my mom was incredibly thrifty and I remember I grew up outside of Chicago that we would go during the weekend, see museums and we would be driving down Michigan Avenue and she would point, for instance to Saks fifth avenue and say only the rich people shop there. While that wasn’t essentially a formal lesson, but you know, as a child, the lesson that I took was that other people shop there, not us, it’s for the rich people. The irony is is that because I grew up with parents that were both very, very thrifty, cheap, I always felt that, you know, whenever I would ask for something, the answer was no.
So when I graduated from college after graduate school and I got my first credit card, it was lovely that no one had to tell me no anymore. And then I got another credit card, another credit card. Before I knew it, I had accumulated a lot of debt. And ironically right about that point, I was hired to work for Consumer Credit Counseling Service of Los Angeles and I was their director of education and training to teach people how to get their debt under control. So, um, I started actually following my own advice and you know, since that point I have a very strong credit score. I think my natural tendency and life is more of a spender than a saver. I find that people are one or the other. My daughter is a huge saver, but I certainly am not. And so I have to put sort of guard rails in place to make sure that, that I don’t overspend.
It’s strange in life how you end up where you end up. And I think that it’s hard for people to know when they’re young what they want to do. I think it’s a process of finding out what you don’t like to do that sort of gravitate you toward what you’re good at. But I have master’s degree in international relations and I started out working in that space. I ran several Berlitz language schools in California, southern California. And that’s, I guess in the education space. I somehow ended up working as director of Education for consumer credit counseling service. And during my interview I had to do a presentation for the board. They hired me and then I started to panic because now I was responsible for teaching others and creating educational materials on how to use credit wisely. And I had no idea what I was doing.
But I think the good news is that, you know, I figured it out. I guess I’m one of the national authorities on personal finance and credit. I’ve written four books, so if I can figure it out, I think anyone can figure it out. CBA has been around for about a dozen years and we are essentially the bridge between the credit bureaus and the nonprofit world. In that capacity, we connect nonprofit lenders that want to start reporting the payment history of their borrowers to the credit bureaus, and we also connect nonprofits to the bureaus to be able to pull credit reports. Most of our members do some kind of financial coaching or counseling and it’s really, really important when you’re doing that to have someone’s credit report in front of you. In many cases, if you’re just asking the person that you’re assisting to tell you about their debts, they may forget some of the debts that they have.
They may be too embarrassed to tell you, but if you have a credit report in front of you, it basically doesn’t lie so that those are the two major functions that CBA does. We’re growing. We have members in every state, but two, and we currently have about 510 nonprofit organizations that are members. It would be my dream if we could convince and recruit every single nonprofit lender out there to start reporting to the credit bureaus. We estimate that about 50% of nonprofit lenders out there don’t report to the bureaus. Many of the nonprofit lenders have a designation that is a CDFI, which stands for community development financial institution. They’re certified by the Treasury Department and there’s about 1200 / 1300 of these entities around the country. They’re the best kept secret and their mission is to basically lend in distressed neighborhoods and they are affordable lenders – they are responsible lenders. Many of them don’t report to the bureaus.
We’ve actually done a lot of analysis with experience that shows the benefit to the consumers of reporting their payments to the bureaus. Obviously if positive payments are reported to the bureaus, someone’s credit score improves. Once that happens, then they can get access to additional lines of credit. You know, credit scores and credit reports are also super important and things like tenant screening and your credit report is used in many hiring processes. And so for us success would really be as if we can convince all of these nonprofit lenders that are currently not reporting the bureau to actually do so they would really be helping their borrowers in a huge way. Many of our members provide small business loans and these are the type of loans that are given to someone who may not even have a small business yet just a business plan.
And for that person, it’s really hard if you don’t even have your business going to get a loan from a traditional lender. If you go to a bank, for instance, with Your Business Plan, you know more times than not you’re turned down. But nonprofit lenders will help you in. Many of them do business coaching. In addition, they’re very hands on, so there’s a lot of business loans. If a business does not currently exist, they’re underwritten based on the consumer’s credit history, and so it’s really incumbent upon the consumer to improve their own personal credit history in order to actually get approved. Our members provide mortgage loans, car loans, small dollar consumer loans. They’re really in a space that is quite necessary for people that don’t have a strong credit history or that don’t have any credit history at all. And we call those individuals credit invisibles. But most of our members have extremely affordable interest rates in the single digits, you know, double digits, certainly not in the predatory triple digit interest rates that we see with some of these alternative financial services providers that are more predatory than not.
They are very entrenched in many communities and most people find out about them through either government referrals or through borrowers that have had great success and then they spread the word through their community that absolutely that’s a huge problem with not having enough people know that they exist, which is a shame because if people don’t know that there are affordable nonprofit lenders in their community that they can go to in times of need, they may think that their only options are predatory lenders or auto title lenders. In many cases, their business model is actually to have the car repossessed. We find that on average, if someone has just one trade line and the trade line is a word for like one line of credit and they pay it on time and that’s the key that they have to pay on time. That’s the single most important thing that they can do to help prove their credit score.
But if they pay that single a trade line on time, that between three to six months we usually find they’ll have a credit score in the mid six hundreds it’s much harder for someone to improve their credit score once they’ve harmed it, but if you start from zero, it’s not that difficult. I think some of the common pitfalls are not realizing the importance of paying on time. You don’t want to get credit cards and charge them up to the Max. Then you’re going to be in sort of what we call the danger zone in terms of your credit utilization ratio and so if it gets too high it’s going to also affect your credit score. So really trying to not charge more each month on your credit card them you can hope to pay in full when the bill comes is a great way to prevent you from getting yourself in over your head.
I think one of the most interesting things with my daughter who’s only 10 is that there is not a reality at all as to how much things cost too. I have the opportunity for her to raise money through chores and she is more of a saver than a spender. So she’s saved quite a lot of money and she’ll say things like, well, I want that, or I want that for Christmas. And I’ll say, well, that costs this much. Why don’t you buy that yourself? And she’ll say, well, how much does it cost? And I’ll tell her, and I said, well, how much money do you have? And she’ll say, well, I don’t know. You know what? We’ll have her count it up and maybe it’ll be $50 and maybe the thing that she wanted costs 300 and then just the reality that she’s $250 short, like, oh wow.
You know, it was like a light bulb goes off. So I don’t think at all kids understand the cost of living and how much housing and bills. And you know, I show my daughter bills all the time. This is the electricity bill, this is the, you know, the water bill. This is our more good. I think that kids are really interested. They just don’t understand purchasing power. And how costly things are for certain kids depending on their personality than an allowance is really good. I think for other kids that making it more chore based works better, and for my daughter, she’s just more motivated by the opportunity to make money by doing specific chores. So I tend to just provide extra earning opportunities than just a straight allowance. But again, that’s a really individual thing and it really depends on your child. I think when they get around 15 / 16 / 17 / 18 that that’s a great time to start introducing the concept of credit.
You might want to give them a credit card with their name added as an authorized user so they’re linked to your card. If they are listed as an authorized user, they can start to build a credit history, which is really important. What’s dangerous is your own credit might be destroyed or ruined because of the behaviors of your child and so it’s always something you should not get into lightly if you’re going to be an authorized user. I always recommend that if your child is an authorized user on any of your credit accounts that you need to monitor it super, super, super closely. Back in the day, like when I was in college, there were credit card companies everywhere, you know, student union during orientation week, you know, giving out frisbees and tee shirts. It was relatively easy to get a credit card. And in many states from many campuses, they now have prohibitions against credit card companies coming and soliciting.
And so what I see and what I hear is happening is that students will graduate without getting a credit card, which is not a great idea because it’s much easier for them to qualify for a credit card once they’re in college. Then after they graduate secured cards, we fail at CPA are great instruments to help people build credit. And the way that a secured card works is that you have to put down money in the form of a security deposit, usually between three to $500 and then you’re basically borrowing against your own money. So it’s very low risks for the credit card company, but the center for financial innovation did a survey or a visa and they found out that only 1% of the credit cards in the market are actually secured credit cards. So even though it’s available, we’re finding it’s not really utilized.
There is a lot of confusion among consumers about credit scores. Many consumers think there’s just one, which is absolutely not the case. There are many companies that provide credit scores such as vantage score. Each major credit bureau also has their own proprietary scores and within each credit bureau there are different scores for different sectors like automobile or mortgage, and so there’s a multitude of scores and they’re also not on the same range. So if you have a certain credit score number with one company or one model, it might not at all be comparative to another score. So there’s a lot of scores out there and a lot of different models and a lot of different ranges. It’s really important to understand whatever score you have. What does that mean within that score? Know where are you within the range. Are you high risk? Are you low risk? If the consumers can work to get themselves into, you know, a lower risk segment, what that means is that they will usually qualify for lower interest rates and that can save them a lot of money. We find that rent reporting is becoming a fabulous way to help the civically low income consumers to really build a positive credit history. So that’s one area that shows a lot of promise.
The first tip is to always pay your bills on time. It’s the most important factor that goes into the makeup of any credit score. The second thing is, is that we recommend to have a minimum of three trade lines in order to be able to really enhance your score. So if you have a credit card, look into having maybe an auto loan, have maybe a student loan. The last is to make sure that you don’t live above your means. And I can certainly tell you that you know the old adage, all you need is money to make you happy. I don’t believe that at all, but I believe the opposite, that if you have money problems, that you’ll be unhappy. I’m just a huge believer in the fact that if you can become financially well and financially healthy, that you can really prosper, not just in terms of your money, but in terms of all of these other areas of your life that are really intertwined with your financial health.