Big banks might approve you for credit with no credit score
A new federally backed program featuring some of the nation’s largest banks aims to help you open a credit card even if you don’t have a credit score.
Banks such as JPMorgan Chase, Wells Fargo and US Bancorp may begin a pilot program this year that evaluates applicants’ checking and savings account information to increase the chances of card approval, according to the Wall Street Journal. The goal is to help underserved but financially responsible Americans access credit.
According to the Consumer Financial Protection Bureau, approximately 45 million Americans may be denied credit because they have no credit history and are “invisible when it comes to credit.” Those without a credit score will usually pay in cash or by debit card.
Building a strong credit history is one of the first steps towards buying a home and achieving other major financial goals, says Jeff Arevalo, financial wellness expert at GreenPath Financial Wellness, a consultancy firm. in non-profit credit.
“If this initiative helps people get a head start on those financial goals, then it can definitely have a positive impact,” he says.
How will the program work?
Program banks will share deposit account information with the goal of enabling financially responsible customers without a credit score to build up credit.
When assessing credit applicants, banks will look at account balances, payments, and overdrafts. Avoiding overdrafts, for example, could improve your chances of getting a new credit card.
This is a change from the traditional credit card application approval model, which relied heavily on the applicant’s credit score and credit report.
As Arevalo notes, those with no credit history tend to be disproportionately black or Hispanic. “It could be of help for many households,” he says. “Using credit cards wisely is part of financial well-being. “
What are the pitfalls of the program?
The program has great potential but also a potential danger for underserved borrowers who do not use new credit cards responsibly, Arevalo says.
“We don’t want this easier access to credit to lead to increased consumer debt,” he says.
When you’re new to lending, says Arevalo, don’t forget to:
- Make your payments on time to avoid late fees.
- Pay off balances to avoid interest.
- Keep the total debt manageable.
“If people only make minimum payments and keep shopping, their debt will increase quickly,” he says.
He adds that falling into bad habits can increase consumer stress, which can derail their financial future.
“If a person gets into the habit of making late payments or taking on more debt than they can handle, then their credit rating will suffer,” Arevalo says. “They will have to take additional measures to repair the damage that has been done.”
What are the options for no or bad credit?
Even if you don’t have credit or have a slim credit history, you can build a great credit history on your own. Here are some tips from Arevalo to boost your credit profile:
Become an authorized user on behalf of a creditworthy and trustworthy person. Ask a family member or friend if you can be added to their credit card. “Just know that being added to someone else’s account can have a positive and negative impact on you, depending on how it’s used,” Arevalo explains.
Consider opening a secured credit card. This type of card does not require a credit history, but you will need to make a security deposit to open the account. The size of your deposit is usually the same as your credit limit.
Apply for a store credit card. Use the card responsibly – pay in full and on time – and you can start building a solid credit history.
Stay up to date on other payments. On-time payments for utilities, car loans, and student loans can help you build a credit history. “Ask these companies to report payment activity to the credit bureaus,” Arevalo said.