Americans continue to struggle with credit and debt, and amidst that struggle lies an opportunity for retailers to educate consumers on developing better credit habits, and make them better customers.
Consider these statistics that show Americans have much to do to improve their financial standing – and their credit scores:
— Total U.S. credit card debt – $1.03 trillion
— Average user credit card debt – $5,234
— Average credit card debt per household – $8,750 average credit card debt
— Average credit card rate on accounts that assess interest – 14.99% APR
With credit so closely tied to purchasing power, credit education is an increasingly critical issue for retailers, who seek to widen the pool of potential customers and view more robust credit among consumers as a great way to do that.
Why Do Americans Get in Debt Trouble?
Financial consumers wind up struggling with debt for a variety of reasons beyond simply aggressive spending habits.
Often, credit cardholders see their debt skyrocket due to issues that educational training can correct such as the inability to understand credit card terms, a consistent pattern of making minimum monthly card payments, or not fully comprehending the impact of interest rates, especially if a debt is rolled over month to month.
These problems arise for multiple reasons, like not having a household budget (simply adding $10 a week to one’s credit card spending translates into over $500 in added credit card debt over the course of a year), not fully understanding how missing even a single credit card payment leads directly to higher interest rates and higher debt, and by issues outside the cardholder’s control, like the loss of a job or a serious health emergency.
These can lead to a deeper financial debt burden for consumers if left unaddressed. But if the consumer is provided educational counseling on key card management issues, those issues can be minimized or even eliminated once the consumer better understands the negative impact of toxic credit card management on their household debt, and on their credit score.
A Knowledgeable Consumer is an Empowered Consumer
The evidence is mounting that consumer credit education programs can help businesses get customers back on the road to financial health, and help them become better customers.
Consider a study by FINRA that demonstrates “when a rigorous financial education program is carefully implemented, it can improve the credit scores and lower the probability of credit delinquency for young adults.”
Furthermore, data shows that customers who better understand their credit scores tend to pay their bills on time, and have higher credit scores, making them perfect marketing targets for retailers.
From learning how to budget properly to understanding how to use credit responsibly, credit education programs are the ultimate “win-win” for retailers and for customers.
Driving Customer Engagement Through Credit Education Programs
Retail customers are unique from other consumer sectors like finance or health, as the balancing act between shopping for value and buying quality goods can sometimes lean too far in the latter’s direction, and lead to toxic financial decisions that drive consumers deeper into debt, especially with credit card debt.
Credit education programs help customers make better financial decisions by focusing on transparency.
Retail customers often struggle to get a grip on the key factors that drive credit decisions and the underlying factors that influence their credit. Retailers can build consumer loyalty through credit tutorials, videos, one-on-one training sessions, and other forms of online engagement that aids consumers in making smarter credit decisions when shopping for specific products and services.
The best consumer credit education programs offer the following traits:
Credit report education tools. Retailers would benefit from credit report education programs. This gives customers a more broad-based view on how credit reports work, how creditors and lenders use them to make credit decisions, and how consumers can use credit report data to understand spending habits and make more informed decisions. The retailer should strive to include a detailed walk-through and a copy of a personalized credit report
Credit score education tools. Tutorials on credit scores are highly useful for both retailers and their customers. A more engaged customer can learn directly what factors go into a credit score, and where his or her resources are best deployed to raise that credit score (i.e., by lowering credit utilization rates, paying down high credit card interest debt first, and by understanding how late payments can damage a credit score). This area of instruction should also include access to the customer’s VantageScore with an explanation of score factors and benchmark scores for any participant’s city, state, and region within the United States.
Identity fraud education tools. Identity fraud has the potential to ruin a retail customer’s credit health. Retailers can turn that potential scenario around by teaching customers to better secure their data, shop more smartly online, and take proactive steps to avoid dangerous, yet pervasive, ID scams like email phishing, debit and credit card fraud, and Social Security identity theft, among others.
Solid insights into how consumers can make better credit and debt household budget decisions. Retailers can also create stronger and more empowered consumers by educating them on key household finance issues like maintaining a budget, saving for retirement via employer-sponsored retirement plans, and making smarter decisions on key personal finance issues such as health care spending and credit card usage.
One-on-one engagement opportunities with trusted credit professionals. Any consumer education program should include a one-on-one, dynamic training session with a professionally trained credit and debt expert.
The end result of a retail customer who completes a credit education course is a highly positive one.
According to Experian data, educated consumers are more likely to take action to maintain or improve their creditworthiness and ability to pay, thereby increasing their eligibility for additional products.
On average, consumers who have completed an Experian Credit Educator session have been able to increase their VantageScore credit score by 21 points over a 12-month period.
That’s a big difference to retailers, who prefer to do business with customers who have stronger credit scores, and who offer less risk when extending credit.
A Straight Path to Repeat Customers
Retailers who provide consumer credit education programs benefit in multiple ways that translate well into a more robust bottom line:
For starters, they gain more engaged customers, leading directly to longer-term brand value. Additionally, customers will increasingly look to retailers who offer such programs as a trusted credit health partner, and become what a retailer values most – repeat customers who will require credit planning services and expert credit support as they learn more about their own financial health, and how to make better credit management decisions.
As these retail customer needs grow, they’ll increase the need for retailer consumer credit education programs and services, as well.
Following through on credit education initiatives is the best (and only) way to leverage a new opportunity to teach customers about credit, and make them better stronger and better customers in the process.