Consumer Credit Literacy: Going Beyond the Buzzword

If you’re in financial services, you probably hear a lot about credit literacy. It’s the new buzzword and everyone seems to be talking about it. But what does it really mean?

Does it mean giving consumers a credit score on their monthly statement? That’s exactly what some companies are doing. But is it enough? What if some of your customers had a medical emergency or lost their job? What if their score dropped and they don’t understand why?

In reality, a comprehensive literacy program includes more than a credit score. It includes explanations about factors that contribute to a credit score, simulators that show how consumers’ decisions can impact their score, trends and articles. It can also include access to experts who can explain the fundamentals of credit reports to your customers.

The result is customers who are more aware of how credit works, which in some instances, may prompt them to make better financial decisions, which could reflect on their credit scores. And, with improved credit scores, your customers could become eligible for additional loans, mortgages and lines of credit. 

A financial literacy program has another benefit, too. It allows you to satisfy the needs of federal regulators who are urging banks and credit card companies to provide free credit scores and educational content to consumers.1 A comprehensive credit education program can help you:

 

1) Maintain a good relationship with regulators. Along with being forthright in your advertising and marketing materials, providing free credit scores, educational content, score simulators and live support, can help you appease regulators.

2) Increase loyalty with your customers.  Did you know that 60 percent of adults have not reviewed their credit score and 65 percent have not reviewed their credit report in the past year, according to a recent study.2 By supplying free credit scores, along with detailed explanations of what is affecting their credit, you will be providing a valuable service to your customers and in turn, they are likely to value your relationship and brand more. Everyone likes getting something for free and by providing an added benefit of credit knowledge, consumers are more likely to build trust with your brand.

3) Increase revenue for your business. When your customers have an increased appreciation for you, along with an increased awareness of their credit scores, they are more likely to turn to your organization when they need a car loan, a mortgage, home equity line or small business loan. Not only that, but as they make better financial decisions, you can provide additional opportunities for your consumers to gain access to lower rates and additional loan types.

4) Differentiate yourself from the competition. A comprehensive literacy program, especially one that includes credit monitoring and identity theft insurance can make you stand out from the competition.It shows that you care about your customers’ financial well-being and are willing to give them more than other companies.

At the end of the day, providing credit literacy should mean more than just putting a credit score on a monthly statement. It should involve a comprehensive program that teaches your customers to take care of their credit or at the very least, makes them aware of their credit and what affects it. A comprehensive credit literacy program should be thought of as an investment, not an item on a checklist to appease regulators or keep up with the competition.

 

 

 

1 Consumer Financial Protection Bureau, Letter to Financial Institutions, February 2014.

http://files.consumerfinance.gov/f/201402_cfpb_letters_credit-scores.pdf

 2 The 2013 Consumer Financial Literacy Survey, Harris Interactive, Inc.  Public Relations Research

 

Like what you're reading?

Sign up for our quarterly newsletter on trends, regulatory issues and more.

  • Sign Up Now

Infographic Download

The Hispanic Market: An Untapped Opportunity.

Download this infographic to unveil the need for credit education.

Download Now