An Alternative Path to Credit Success

Credit unions need to understand how to help members with little or undesirable credit.


Credit dictates many things in a person’s life, and a substantial portion of the population is swimming against the credit current. According to an article on, 35% of Americans have a FICO score below 650 (the number that serves as the dividing line for lenders). Another 25.5% scores below 600.

The numbers reinforce that every credit union must understand how to work with members with adverse credit situations. Undeniably, they are out there and need help.

One New York credit union is charging into the vacuum.  

Alternatives Federal Credit Union ($69M, Ithaca, NY) is using an innovative model, a varied product line, and some education to help members. Although Alternatives is a community development credit union, which makes it eligible for non-member deposits, much of what it is doing is applicable to the entire credit union industry.

Alternatives has grown membership year-over-year to the tune of 3.87%, as of June 2010. Most of its growth is attributable to referrals and word-of-mouth that is the result of an updated, but still modest, advertising budget, says Tristram Coffin, Alternatives’ CEO.

During the same period, the credit union also grew its loan portfolio 8.8%. The majority of its portfolio –$29.9 million of $40.6 million as of 2Q2010 – is in real estate loans. The First Home Club individualized development account (IDA), equipped with matching, is partially responsible for the strong showing, as is an expansion of business lending to include commercial mortgage and student housing loans up to $400,000.  

During the past three years, the credit union has grown in assets from $50 million to $69 million. Its IDA program participation has more than doubled during the same time, Coffin says. Additionally, homeowners have bought more than 70 houses in the Ithaca community using matching funds from the home-loan IDA offered at Alternatives. That is a direct, tangible impact on both members and the community.

 “When someone uses our services, we want them to come away with an enhanced credit score, greater confidence, and financial knowledge or other benefit that helps the member work toward their financial goal,” Coffin says.

Many people need credit to reach those goals and to mitigate existing issues, so Alternatives offers Share Secured Loans. These loans allow members to borrow against their savings with an interest rate that is 2% higher than the return they’re receiving on a deposit.

“The benefit to the borrower is a successful payment experience being reported to the credit bureau,” Coffin says. 

To complement the loan offerings, the credit union provides an array of IDAs aside from the First Home Club account. Every member that has an IDA is enrolled in MoneyWise, a seven-week course at the credit union that teaches the fundamentals of financial responsibility. As if that’s not enough, the credit union also has a credit and homeownership counselor on staff.

The work being done at Alternatives illustrates how credit unions look past a raw credit score to see a person.

“A credit union can offer a viable business model that expands opportunities for communities in need,” Coffin says. “In this way, the underserved may be the ‘blue ocean’ that many credit union leaders seek, in which our service orientation and affordable pricing can help us gain new members.”

Sometimes it takes a credit union to do what other financial institutions don’t.