People with bad or no credit may now get help from an unlikely source -- a bank.
Provident Bank of Maryland and the Real Estate Center for Affordable Housing are putting the finishing touches on a new program that will make it easier for people with negative credit histories to improve their credit ratings. Ultimately, they may qualify to buy their own homes.
Burt Hash, Provident's managing director of community reinvestment, said the bank has committed $100,000 to a credit-building loan program for low- to moderate-income people. The real estate center, a non-profit organization in Baltimore that advises low- and moderate-income people on how to buy houses, will coordinate the program and screen applicants.
The new program, called Credit Changers, is especially for people who are trying to correct credit mistakes, said Charles Jeffries, executive director of the real estate center.
"Banks want to see that you've stabilized and you are making the next step," he said. "Credit Changers is the next step."
Here's how the program works:
Provident Bank will lend $500 to $3,000 to qualified individuals. The money is deposited in a special savings account, and participants must pay back the loan in 12 monthly installments. The participants do not have access to the money until the loan is paid.
At the end of the loan term, participants have cash that they can use for a down payment on a home. They also have repaid a debt -- positive information the bank reports to the credit bureau.
While they are repaying the loan over the year, participants also get quarterly credit counseling from Provident Bank at no charge. Mr. Hash said counseling will focus on homeownership but also will include general banking and budgeting advice.
The real estate center will fill in with monthly counseling to encourage participants to practice good credit habits. "The counseling component is important because we're going to show them how to work with the system," Mr. Jeffries said.
"We discovered a lot of people don't have this information. And here we have the bank telling them how to do it."
Credit Changers is similar to the real estate center's Credit History Loan Program, introduced in 1991, which teaches people good credit habits by giving them a practice "loan." No money actually changes hands, but applicants send the center monthly vouchers as payments on their loan.
If all payment vouchers are received on time, the center sends a favorable report to a credit information bureau, and the applicant has begun to build a good credit history.
Mr. Hash said Provident approached the real estate center after hearing about its Credit History Loan Program in October.
"Jack Novak, our managing director of the consumer lending division, felt it was a unique idea," Mr. Hash said. "But we felt the voucher [system] would not show reliable credit experience to a credit bureau. We felt you had to have a loan.
"We have programs where we are trying to interest people in buying homes and we've set aside dollars for that," Mr. Hash said. "Unfortunately, there are times when you're involved with people with low to moderate incomes, and you don't always have a facilitator," to help show them how to qualify for the programs.
Mr. Hash said the real estate center would be the link between the bank and people looking for credit help. "We feel this helps the community become aware of what programs are available and what you have to do to become a homeowner," he said.
Mr. Jeffries said that to qualify for Credit Changers, most people simply have to demonstrate a willingness to improve a credit history. (See chart)
Mr. Jeffries said there is no maximum income for the program but that the emphasis is on helping low- to middle-income people.
Applicants for Credit Changers must also show no open judgments, tax liens or late payments due creditors. Mr. Jeffries said that a past bankruptcy is not a problem, as long as creditors have been paid.
He said people who do not qualify for Credit Changers -- those who still have late payments to make up, for instance -- can participate in the real estate center's voucher program.
"We don't want to turn away people who have credit problems," Mr. Jeffries said. "That's why we have the voucher system. For people who are stabilized, Credit Changers is the next step."
Mr. Hash said some aspects of the program still have to be worked out, such as the amount of interest participants will pay on their loans. He expects that they will pay the bank 7.5 percent to 8 percent on the loan balance.
"But when you look at our cost to administer the loan and the fact that we're doing counseling, it is a nominal cost," he said. "We will also pay them interest on the account they are building," he said, 2 to 3 percentage points below the loan interest.
Mr. Jeffries said the real estate center will charge a fee of up to about $40 for participants it enrolls in the Credit Changers program.
Mr. Hash said Provident and the real estate center will evaluate the Credit Changers program after six months. If they find it is working the way they think it should the program will be continued.
How to qualify for Credit Changers
People with bad credit histories can get help from Provident Bank if they meet the following guidelines:
* Work at the same job for a year
* Live at the same residence for a year
* Live in Baltimore or surrounding counties
* Have active checking and savings accounts
* Maintain a household income of at least $15,000
* Show no open judgments, tax liens or current late payments to creditors