Build relationships with credit builder products

With a third of underbanked Americans unable to come up with the money to cover a $2,000 expense, there’s never been a more pressing time for them to build their credit history and improve their financial wellness.

Whether they’ve had delinquencies and defaults in the past, were victims of identity theft, or simply have a thin credit file, borrowers who want to demonstrate their creditworthiness are often interested in credit builder products—loans or revolving accounts whose primary purpose is not just meeting their current cash flow needs, but reporting on-time payments to the credit bureaus to gradually build up their credit scores.

For lenders and other financial institutions, these products sound like a win-win. They provide help to borrowers, fostering strong customer relationships over the long-run, and all the while you’re earning a reasonable return on the credit builder product itself.

But these credit providers often face the same difficulties:

• Acquiring new borrowers
• Maintaining operational efficiency in their portfolio
• Converting this one-time transaction into a long-term relationship

Among the thousands of unique products managed through LoanPro, we’ve seen quite a few credit builder accounts. Drawing from that firsthand experience, we’d like to share what we’ve learned about how to launch, support, and expand a credit builder program that complements your overall portfolio.

Bolstering a product line with credit builder accounts

Winning and retaining customers depends on a creditor’s ability to foster loyalty, turning what might otherwise be a simple transaction into a relationship that benefits the borrower as much or more than it does the lender.

Through LoanPro’s modern platform, you could launch and support a credit builder product that complements and expands their offerings to consumers. LoanPro can fully support virtually any credit builder program imaginable, from installment products to credit cards to hybrid models somewhere in between. We can also give providers the tools to effectively encourage and incentivize on-time repayment with automated reminders, an easy-to-use customer portal, and customizable hardship programs that can adjust payment schedules if borrowers face unexpected financial difficulties.

This program offers customers a straightforward and approachable way to improve their credit score as they repay, and all the support they need to ensure it goes smoothly.

The difficulties of credit builder products, and how to overcome them

Credit builder products come in all shapes and sizes, from installment loans with small payments for just a few months, to credit cards that expand their credit limit as borrowers make on-time payments. Regardless of their differences, though, these products will all face similar challenges. Let’s break down the issues credit builders are likely to encounter, and how the most effective credit providers have overcome them.

Low acquisition rates

There’s a lot of credit builder products on the market. Many of them, frankly, don’t stand out from the crowd. The conventional solution is to simply pour more money into advertising your product, but even in a best-case scenario this results in lower margins for each account.

Instead, use creative strategies to drive acquisition on their credit builder products. Whenever an applicant fails to qualify for your other products, you should redirect them to a credit builder. With LoanPro’s integrated data partners and API calculator, you could retrieve credit scores, match them to the appropriate terms (based on your own business logic), and show them how this credit builder could improve their score until they qualify for other products in your portfolio—all in just seconds, and without any manual input from your agents.

You can also help your products stand out with a solid customer experience. Hardship programs, for example, can win customer loyalty while also preventing defaults, pairing nicely with the purpose of your credit builder accounts.

High maintenance costs

For applicants, the most appealing credit builder products will be those that do the most to boost their credit score. For credit providers, that translates into a wide array of tasks for frontline agents and back-office staff, like sending due date reminders and reporting to the credit bureaus, and those tasks will eat into the accounts’ profitability.

LoanPro’s end-to-end platform can reduce those maintenance costs during every stage of the account lifecycle, ensuring your products remain financially sustainable. Where other systems lack the tools to keep your operations running smoothly or staying compliant with regulatory requirements, LoanPro simplifies complex processes through automations and a guided agent UI, all tailored to your products and policies.

You can cut down on repetitive tasks with tools like Quick Actions, which turn multi-step processes into a straightforward, guided UI for your agents, even condensing them into one-click solutions. For one client, Quick Actions and automations enabled their users to handle three times as many accounts. Another was able to decrease their default rates by over 20%, all within just their first month using LoanPro.

Weak conversion

Borrowers see their credit builder products as a prelude, bolstering their credit history and FICO scores so they can qualify for better credit opportunities. These opportunities might be incremental, like a lower APR on their next car or a higher credit limit on their card, or be pointing toward major financing transactions, like a mortgage they could have never qualified for with their previous credit score.

The end of a credit builder product is also the moment the lender has been waiting for. They’ve invested the time and effort into helping this borrower prove their creditworthiness, and now they can confidently extend them an offer for a larger and more lucrative product. But all too often, the customer jumps ship, switching to another credit provider for their next loan or credit card, and after all the effort of acquisition and maintenance, you’re left with little to show for it.

If your credit builder customers aren’t converting into long-term customers on other products, you’re leaving money on the table.

We’ve seen credit providers drive conversion with a few complementary strategies:

• You’re already ahead of your competitors. As you report on-time payments to the bureaus, your borrowers’ FICO scores will gradually rise until they qualify for a wider swath of credit opportunities—both yours and your competitors’. But that change is predicated on data that you’re already collecting and submitting. Well before their score reaches their goal, your customers’ will have demonstrated their creditworthiness directly to you, giving you a golden opportunity to confidently extend better offers to them. Like the credit builder itself, this is a win-win: You get long-term business, and they get faster access to better credit. We’ve seen companies leverage LoanPro’s custom automations to streamline this process, automatically identifying borrowers after a certain number of on-time payments and sending personalized communications telling them which products they’re prequalified for.
• Keep their business with a best-in-class experience. It’s true that the top concern for most borrowers is the financial terms of their account, but the convenience and overall experience also makes a significant difference, and you happen to have a perfect opportunity to show them how good your experience is while they use your credit builder product. Some of LoanPro’s clients (the same ones who rank in the top 10 of the J.D. Power Awards for customer satisfaction in consumer lending) have seen success with LoanPro’s tools like the borrower portal and smart communications.

Going to market with speed and flexibility

We understand that launching a credit builder product isn’t just about getting your initial version out. Amid a competitive market and an ever-shifting regulatory landscape, go to market speed will remain an ongoing concern as you adapt your credit builder and the rest of your portfolio.

Historically, we’ve implemented net-new products in just 60-90 days. With over 2,000 unique products successfully launched, LoanPro has streamlined our go to market process through out-of-the-box programs and processes, all ready to start servicing your customers with minimal setup:

• Pre-configured programs based on the lending models most preferred by borrowers, including credit builder accounts and credit cards
• Pre-set processes for common servicing and compliance tasks, streamlining your agents’ day-to-day workload and reducing the risk of errors
• Easy-to-use customization tools that require no back-end coding, meaning you can launch and iterate with unprecedented speed

Why launch a credit builder now?

Within the last year, LoanPro has launched multiple credit builder and card products. In each case, we’ve not only seen fast launches and successful products, but also an improved experience and greater financial freedom for the borrowers themselves.

Launching your credit builder product on LoanPro would grant your customers more convenient and affordable access to credit, and a better financial outlook going forward.

If you’re interested in learning more about the credit builder programs and other products you could launch with LoanPro, reach out and schedule a demo. We’d love to show you how it works.