Building credit is an important aspect of achieving financial stability and freedom. Good credit increases your chances of loan and credit card approval and opens doors to better deals.
Maintaining a satisfactory credit score may prove challenging for some, as it can be very volatile. Bad credit takes some time to be build up again, but, using various methods, it can undergo major improvement. These methods include making better financial choices, getting a loan and paying it on time, or using a secured credit card to prove your financial responsibility.
Although many people struggle with improving their credit, some have no credit at all (around 53 million, to be exact). This makes any loan approval process difficult since the lender can’t use their credit history to estimate whether they will pay their debts on time and make a decision accordingly.
To combat this issue, a government-backed initiative has been started with the goal of facilitating the approval of credit cards for individuals with no credit history. The program includes several banks, such as JPMorgan Chase, U.S. Bancorp, and Wells Fargo.
Through an exchange of bank account information about their credit card applicants, they will be able to recognize financially responsible individuals and issue them a credit card.
The launch of this pilot program is expected to happen this year.
How Will It Work?
Potential lenders will share information from the applicants’ checking or savings accounts, such as their account balances and overdraft histories. This information will serve as a means to determine whether the applicant is financially responsible. If so, their credit card will be approved, giving them the chance to begin building credit.
Credit bureaus, such as Equifax, TransUnion, and Experian could potentially be used for the data sharing process.
Although this has been an issue for a while, last summer’s protests reopened the discussion about protecting the disadvantaged members of society (who are usually the ones without credit). It prompted representatives from banking, fintech, and nonprofit organizations to meet with the Treasury Department and discuss solutions.
If all goes well, this project’s method may find future use in the approval process for other loans (personal, auto, mortgages, etc.).
Who Will Benefit the Most?
The aim of this pilot program is to help financially responsible individuals with no credit score get a credit card. The groups that usually have no credit score are young adults who still haven’t opened active credit accounts, people who are absent from the US for a longer period, new immigrants, widows, widowers, divorcees, etc.
These groups of people are at a disadvantage for important purchases that might require loans, such as buying houses/apartments, cars, or even appliances. The new program aims to raise the approval rate for credit cards by giving these groups of people an equal chance for financial support.