The credit card user experience is finally getting some attention.
For the last couple decades, credit cards have been a bit elitist in their selection process, and mostly indifferent to how users felt about it. It’s been more of a “you work for us” mentality in the industry, but lately that dynamic has been shifting in the cardholder’s favor.
With interest rates remaining low across the board, brokerages dropping fees, and credit card companies being forced to offer better rewards as a result, the democratization of finance continues to expand. Because of this, credit card companies are no longer getting away with shutting out new users entirely or charging them exorbitant interest rates without critique.
They now have to offer something of more value, and this is manifesting itself mostly in the areas of alternative credit, rewards, and scoring updates.
Alternative credit card opportunities are growing.
More and more secured cards and those that would be considered a part of that class are coming on the market. These types of loans give new borrowers with little to no credit history an opportunity to get started building their creditworthiness and is undoubtedly an area of the market that has been wildly underdeveloped until just recently.
Many of these alternatives do not require a hard credit pull, ergo no credit history either, in order to validate someone’s application and ultimately approve them for the credit line. They use other quantitative, and probably more relevant, metrics such as your income and account balances when analyzing your status. Examples of such alternative credit cards include Tomo Credit and Petal, to name a few.
This is invaluable to many people, especially college students and young adults. Because of the way the system works today, one must theoretically have a credit score and overall good credit history in order to qualify for a noteworthy credit card, or definitely for any sort of installment loan in the future.
Also, let’s talk about the fact that the current credit scoring system is outdated and illogical sometimes.
The way the system is presently set up could be likened to the chicken and egg debate: how can I have one without first having the other? What if I have $10,000 in cash and want to use my credit card for small purchases and immediately pay them off to build up my credit score, but I'm unqualified because my income and credit history are nonexistent as a college student?
You can see the conundrum here, and the inefficient laziness of the current creditworthiness scale being based on these things alone. Luckily, this is starting to change with the inflow of demand for new alternative credit products as mentioned above. Even the biggest credit scoring agencies are adapting. In fact, FICO is making changes to their credit scoring models to reflect more nuance, with plans to roll out a new model as early as this summer.
📚 Want to brush-up on how the current credit scoring system works? Take this bite-sized Finny lesson: