Informal lending circles can help low-income consumers move into the economic mainstream.

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Published in The New York Times | October 10, 2014

In lending circles, a roundabout way to a higher credit score

By Patricia Cohen

Shweta Kohli has always paid her own way. Her straight-A average won her a full scholarship to San Francisco State University at the same time she worked a 40-hour week as a waitress at a cafe. But when she applied for a credit card after graduation, she was turned down because she had no credit history.

So three years ago, Ms. Kohli, now 34, joined a lending circle—a small group of people who chip in every month to lend money to one another at no interest. Managed by the Mission Asset Fund, a nonprofit group in San Francisco that works with credit-rating agencies, the circle offered Ms. Kohli something no bank would: a chunk of cash and a chance to build a credit score.

After faithfully making payments—and socking away enough to buy a 1997 Ford Mustang—she raised her credit score from zero to 789 in 26 months. Ms. Kohli, ever the striver, said: “My goal is to keep it at 850, the highest.”