Traditionally, anyone applying for a credit card must undergo a credit check to be approved. In order to approve an applicant for a credit card, the credit card issuer pulls the applicant’s credit report and credit score.
Many people who don’t have credit can’t get a credit card approval because of this process. There’s a major catch-22 here, since getting a credit card is one of the best ways to begin building credit history, but you can’t get a card if you don’t have any credit history.
In response to this issue, 10 of the biggest banks in the United States – including JP Morgan Chase, Wells Fargo and US Bank – have launched a pilot program that allows applicants with no credit history to qualify for credit cards using their bank accounts.
This program is made possible by a data-sharing agreement between participating banks, reports The Wall Street Journal. An applicant’s bank account activity can be used when a bank pulls an applicant’s credit and learns they have no credit history. In addition to account balances, overdraft histories, and whether any checks were returned, this activity may include account activity. This activity helps the banks to determine whether to approve the application. In order to facilitate this process, the banks have agreed to share account data.
WHAT THE NEW PROGRAM MEANS FOR PEOPLE WITH NO CREDIT
With this program, people without credit histories who are financially responsible can get credit cards. It’s potentially good news for anyone with the ability and desire to use a credit card responsibly, but cannot qualify for one due to their limited or nonexistent credit history.
JP Morgan Chase will be the first bank to offer the pilot program to applicants. In the fall, they plan to consider credit card applications using bank account data from their own customers and from other banks.
The fine print in the credit card application, which typically gives the bank permission to pull a person’s credit history, is likely to be updated to include language that covers bank account information. Since it’s a pilot program, it’s likely to be available to only a select group of customers at first. If the program is successful, it may be rolled out to others. It’s important to keep in mind that this program is essentially a test to see if it’s viable, and the banks can eventually drop out.
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