Access to credit is a cornerstone of financial well-being. Proper use of credit is essential to affording many of life’s necessities and unlocking some of its most important opportunities. This newsletter is devoted to understanding the value of credit so we can be more empowered in its use. Lastly, we will show how VIVA is challenging the traditional credit model in order to build a more inclusive financial system.
What is credit?
The first question we must answer is, what exactly is credit? Simply put, credit is the ability to borrow money based on the trust that we will pay it back later.
In case of emergency
One of the advantages of credit is that it allows us to buy things we need now that we might not be able to afford all at once. This is extremely valuable in cases of emergency. For example, if your car breaks down, you might not have enough cash on hand to cover the cost of the repairs. However, if you have access to credit, you can use credit to pay for the repairs right away and pay that credit back over time. Credit allows you to get your car back on the road and get on with your life.
Life purchases and opportunities
The same principle applies to many of life’s largest purchases and important opportunities. Credit can enable us to move into our dream home or pay for higher education. For example, when we buy a home, we can borrow that money from a mortgage lender, move into the home right away, and pay back the mortgage loan over many years. (For more information on the mortgage process, see our previous newsletter on How to Buy a Home in 2020.)
Types of credit
Credit comes in many forms, but there are two primary types of credit: revolving credit and installment credit.
- Revolving credit is a line of credit you can continuously borrow from as long as you stay below your limits and make your required payments. A credit card is a common example of revolving credit.
- Installment credit is a fixed amount of money loaned that you must pay back over a set period of time. Common examples of installment credit are mortgage loans, auto loans, and personal loans.
Establishing trust
There are many forms of credit, but they are all based on one fundamental principle: trust. For a lender to offer you credit, they must trust that you will pay it back. The more a lender trusts you to repay your debt, the friendlier your rates and terms can be. The conventional way to establish trust with a lender is your credit score. The most important factors that influence your credit score are:
- Your history of making on-time payments
- The amount of debt you carry relative to your income
- The length of your credit history
The traditional model
In the current financial system, your credit score is essential to establishing trust with lenders and it is imperative to manage your score as well as possible. However, this conventional model has its challenges and limitations. If you experience a financial hardship and have to default on a loan or declare bankruptcy, it can damage your credit score and severely limit your financial opportunities. Unfortunately, about one-third of Americans struggle to access affordable credit under the traditional model due to damaged or non-existent credit history. When faced with financial emergencies, individuals with lower credit scores are often forced to borrow from expensive and predatory lenders, which can lead to vicious cycles of debt and further credit damage.
VIVA’s mission: building an inclusive financial system
At a time when the world is changing rapidly and Americans are uniting for equality, VIVA is striving to be part of the solution. VIVA’s mission is to build an inclusive financial system, and this starts by giving more people access to fair and affordable credit. VIVA’s model is built on the belief that trust can be established outside of the traditional credit metrics that currently exclude millions of Americans who have experienced financial hardships. VIVA’s credit model is based primarily on employment information in order to reward hard-working employees for their ability to maintain their jobs—regardless of credit history.
Break free from debt and rebuild credit
If you have been stuck with burdensome debt as a result of expensive or predatory lending, VIVA offers unsecured personal loans up to $10,000 that can be used to refinance and consolidate debt. If your credit score has been damaged due to a financial hardship, VIVA’s loans can also be used to rebuild your credit. There is no credit score requirement to borrow from VIVA, and our automatic repayment process is designed to make on-time payments as effortless as possible. Please visit www.viva-finance.com to explore our financial empowerment resources or see if there is a financial option that is right for you. If you have any questions, please give us a call at (678) 685-8834 and a team member would be happy to speak with you.
Thank you for being part of the VIVA Finance community, and we look forward to serving your financial well-being.
Sincerely,
The VIVA Team
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