Traditionally, anyone who applies for a credit card must undergo a credit check to get approved. The credit card issuer pulls the applicant’s credit report and credit score to determine whether to approve them for a card.
But this process locks out many individuals who can’t get a credit card approval because they have no credit. It’s a major catch-22 as getting a credit card is one of the best ways to start building credit history, but you can’t qualify for a card if you have not established any credit history.
To address this issue, 10 of the biggest banks in the United States – including JP Morgan Chase, Wells Fargo and U.S. Bank – are launching a pilot program this year that allows applicants with no credit history to qualify for credit cards using information about their bank accounts.
According to The Wall Street Journal, the program is made possible because of a data-sharing agreement between the participating banks. When a bank pulls an applicant’s credit and learns they have no credit history, they can use the applicant’s bank account activity. This activity may include account balances, overdraft history and whether they have any returned checks. This activity helps the banks to determine whether to approve the application. The banks have agreed to share account data with each other to facilitate this process.
What New Program Means for People with No Credit
The program is aimed to help people who are financially responsible but have no credit history, to gain access to credit cards. It’s potentially good news for anyone who has the ability and desire to use a credit card responsibly, but they can’t qualify for one because of a limited or nonexistent credit history.
JP Morgan Chase is expected to be the first bank to roll out the pilot program to applicants. As early as this fall, they plan to start considering credit card applications using bank account data from their own customers and shared from other banks.
The fine print in the credit card application, which typically gives the bank permission to pull someone’s credit history, is likely to be updated to include language that covers bank account data. Since it’s a pilot program, it’s likely to only be available to a limited number of customers at the outset. But, the program may be rolled out to more if it’s successful. It’s important to remember that this program is essentially a test to see if it’s viable, and the banks can eventually drop out.