While major credit card issuers have tightened lending standards and cut credit limits in the context of COVID-19, some fintech startups have taken a different approach.
In 2020, young companies like Grow Credit, TomoCredit and Chime will roll out or extend credit cards for people with less than ideal credit – because they don’t check credit at all. Instead of relying on traditional FICO
credit scoring modelThese “fintech” products can assess alternative factors such as bank accounts and money management to determine eligibility.
Furthermore, these cards have no annual or even APR fees. It is truly impossible to carry balance on them.
Here’s how these new credit cards differ from traditional ones and why they’re easier to get, even in tough times.
How startups might judge candidates differently
Traditional credit card companies do this Difficult questions about your credit report to rate your creditworthiness. So, even before the pandemic, card options were slim for those with no credit or poor credit (FICO score of 629 or less).
But some of the new products on the market don’t care about your credit report as much as they relate to other aspects of your financial life.
Example: Grow Credit offers Grow Credit Mastercard
issued by the Sutton Bank. The company has exclusive technology that measures earnings, according to Joe Bayen, CEO and founder of Grow Credit. Candidates must provide access to their bank account information.
The card allows you to accumulate credits when paying for qualifying monthly subscriptions like Netflix
or Hulu. Subscriptions are traditionally not a factor in your credit report, but essentially, Grow offers cardholders an installment loan that can only be used to charge eligible subscriptions. sue on card. The cardholder pays the bill in full each month and accumulates credit throughout the process.
Mobile phone bill payments can also be handled this way, if you are willing to pay a Grow monthly membership fee.
“The combination of a small loan that can only be used for a single product needed makes our platform very resilient to recessions,” Bayen said in an email.
Or consider Visa Builder Credit Chime
A secured credit card issued by Stride Bank, also doesn’t require a credit check. To get it, you will have to open a Chime Chime Account with a qualified direct deposit. You can use the expense account to add money to your Credit Builder secured account, which determines your credit limit on the card.
Zachary Smith, Chime’s head of product division, said: “Direct deposit certainly helps us understand our members’ income and spending habits in a way that helps us deliver this product safely. fuller.
TomoCredit offers Tomo Cards. The startup’s technology allows the issuer, the Community Federal Savings Bank, to determine card eligibility based on a variety of factors, including earnings and account balance. Cards also earn rewards. Linking the eligible account through a third-party service is required.
Beneficial for cardholders and card companies
These cards have a protective rail that can minimize risk for both the consumer and the issuer.
First, you cannot carry balances with these products and, therefore, they do not charge interest. The companies behind these cards make at least partial money through exchange fee, is rated for sellers as they accept credit card payments.
Because you have to pay on time and in full, overspending is unlikely to happen. Both you and the card company can worry less about the possibility of default.
(The Grow Mastercard is reported to credit bureaus as an installment loan.) These offices record the information used to calculate your credit score. A good score of 690 or above can save you money on car interest, home or other credit cards.
And a free credit card makes it easy to keep your accounts open and active, helping maintain the length of your credit history, another factor in your credit score.
Continue reading: Credit report errors are a big deal for consumers – how to fix them
For LaToya Wilson, 46, a Minnesota resident, Chime Credit Builder Visa Secured credit card allows her to rebuild credit without risk of credit card debt and get closer to home buying. She gets the card in 2020.
“This time I’m more cautious about what I’m doing and (where) I’m spending,” said Wilson. “I see my credit increase every month when I use it.”
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Melissa Lambarena writes for NerdWallet. Email: [email protected] Twitter: @LissaLambarena.