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Column: Repairing credit problems

For years, we’ve heard the discussion. Lots of us have been talking about too many people with credit problems in America.

At our bank, we’ve decided to do something about it. My coworkers and I believe so strongly that our industry needs to be part of the solution to the credit problem that we’re offering a new program.

It’s not especially lucrative, but I believe it’s the right thing to do. It’s called Credit Builder, and it’s designed to help those with no credit or low credit raise their scores.

Here’s how it works:

A consumer takes out a loan. But rather than he or she receiving the loan money immediately, it stays with the bank as an interest-earning certificate of deposit.

Meanwhile, the consumer starts making monthly payments to retire the loan. We make the loan and the amount of the monthly payments fit what the consumer can handle.

At the end of the program, the consumer has a nice savings account. Remember that loan the borrower took out? It is now repaid and fully the property of the consumer, plus interest.

This kind of meat-and-potatoes credit building isn’t lucrative work for banks or other lending institutions. That’s why few of them focus on it.

The most important part is that we have extended credit, and the consumer is taking steps to develop a solid track record of repayment. That’s really what a credit score is: a track record. Lenders want to know whether you are a good loan or credit risk. In other words, how likely are you to pay them back?

A high credit score means you are a good bet. A low score means you aren’t.

But for people without a credit history or with damaged credit, building credit often seems like an impossible task. They can’t get a loan because they don’t have good credit. But they can’t improve their credit because nobody will give them a loan.

That’s why we started Credit Builder — and why more financial institutions should start similar programs.

Even before a consumer in our program has made the last loan payment, he or she likely will have an improved credit score — sometimes considerably better.

It’s a start to fixing the credit problem in America, slowly but surely and with solid fundamentals. No games. No gimmicks.

Lots of folks were hurt, and their credit was damaged, in the last economic downturn. In addition, more young people have entered the working world looking for a chance to participate in the economy with careful credit purchases, only to find stricter lending rules. Without a program like Credit Builder, it’s hard for people to start or restart.

Getting a loan for a home or a car is still part of the American Dream. The financial services industry needs to work with consumers, and the economic conditions we confront, to make sure that the dream remains achievable.

All of us should want to see people in our community with strong credit. It benefits them, of course. But it also benefits the rest of us when more of our neighbors can fully participate in our economy by responsibly purchasing important items such as homes and cars on credit. That’s what makes the economy go.

Dale Lewis is president and CEO of Park State Bank in Duluth. You can reach her at president@ parkstatebank.com or 218-722-3500.

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