Credit Cards and Credit Ratings: Are Rebuilders Helpful?


A good credit score, especially one universally accepted by lenders such as the FICO score, is an asset for the consumer. The score will help you get credit, purchase insurance, and even be successful in a job selection.

However, chicken and egg problems also exist. With no credit or with insufficient credit, how do you get credit?

Today’s article is from American banker and examines emerging credit programs, ranging from secure cards to data alternatives. Secured cards are proven products that help consumers with blemished credit records rebuild their scores. We broached the subject here and here, explaining that the 2009 CARD law solved the problem. Instead of full-price lenders, the best banks are now playing in the space, and rates are fair and transparent. Now come fintechs. The banker says:

  • A lot of fintechs promise consumers that they can increase their credit score without the need for a credit check or an extended credit history.
  • Varo’s credit building program, Believe, will be launched in the coming weeks. Chime launched a secured, interest-free credit card in June 2020. Other companies, like Extra and Grain, offer revolving lines of credit linked to regular debit cards. MoneyLion provides a loan intended to strengthen the credit history of its users. Esusu, a service that reports rental payments to credit bureaus, has the backing of tennis champion Serena Williams; NBA star Stephen Curry has invested in a startup called Kikoff.
  • There are other products with a niche. Stage, a challenger bank, touts the benefits of building credit for its teenage clients. Sequin, a debit card that provides cash for purchases and is reimbursed from a linked bank account, is aimed at women, who founder Vrinda Gupta, formerly of Visa, has found to be rejected in such a way disproportionate credit cards or were getting lower limits and higher interest rates. .

Our observation is that it takes a while to build credit. Similar to a diet, you don’t just snap your fingers and expect immediate results. It takes preparation work, then action and persistence. Invisible credits are different from people with bad credit.

  • . The most recent Consumer Financial Protection Bureau report on this subject, from 2015, found that 11% of the adult population in the United States was “invisible when it comes to credit” or without registration from national credit bureaus. , and 8.3% were “not notable”. due to insufficient or outdated history.

Addressing this segment is also vital for credit card issuers. As the economy normalizes following the impact of COVID last year, credit card issuers are on the lookout for new accounts, and everyone is chasing the elusive and wealthy millennials. But those on the brink of credit can help fill ballast issuers’ need for interest and other income. The American Banker cites several developments.

  • There are a few examples on the market. For example, petal started selling its cash flow-based underwriting technology to banks and fintechs, in addition to offering its own credit card directly to consumers.
  • TomoCredit in March launched a credit card that assesses creditworthiness exclusively on treasury data. Nova Credit helps get immigrants into the US credit system by making sense of foreign credit bureaus information for US bank underwriting systems.
  • American Express in partnership with Nova Credit in 2019.
  • In May, the Wall Street Journal reported that some of the largest US banks will begin to share data on customer deposit accounts to expand access to credit. This pilot program was born from REACh project (Roundtable for Economic Access and Change), an initiative of the Office of the Comptroller of the Currency to promote financial inclusion. JPMorgan Chase is a bank involved in the REACh project. Mark Brucker, chief risk officer at JPMorgan, said the goal was to responsibly expand access to credit.

FICO scores have a long history of predictability for lenders. Major lenders use it throughout the credit cycle, from acquisitions to customer management, collections and ultimately asset securitization. For consumers, a good credit rating is an asset. For financial institutions, the score is a reliable business resource.

Preview provided by Brian riley, Director, Credit Advisory Service at Mercator Advisory Group


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