Big Banks Are Rolling Out Credit Cards for Customers With No Credit Scores

There are millions of adults in the U.S. who don't have credit scores, but that doesn't mean that they don't deserve access to borrowing money. And several large banks, including JPMorgan Chase (JPM 0.06%), plan to do something about it. In this Fool Live video clip, recorded on May 17, Fool.com contributor Matt Frankel, CFP, and Industry Focus host Jason Moser discuss how and why big banks are rolling out credit cards for consumers who traditionally may not qualify for them. 

Jason Moser: Well, speaking of overhauls in the credit industry, there's another interesting headline that came out here recently. Some of the biggest banks out there, JPMorgan Chase, Wells Fargo (WFC -0.03%), US Bancorp (USB 0.32%), and more are looking at new ways to get consumers credit even though those consumers may not necessarily have credit score to help guide that decision and to guide limits and rates. These banks are looking at using other financial data to do that. Now, I think this is something we talked about on the show a number of months back when we saw that FICA was going to be revamping in the way they calculate their scores. We're looking at new ways credit was going to be offered. But this really does seem like these banks are very interested in leveraging a lot of the data that they already have in order to be able to make well-informed decisions. Honestly, to me, I mean, this makes a lot of sense. I mean, if you're going on data that you already have, if you're going on history, in theory, these banks should have a lot of relevant data that should help them make well-informed decisions. I mean, I don't know. I think this is one more way at least to help get people started that didn't exist before. I remember a time ago when I worked at the bank, I remember folks coming in and the only way they could even remotely have a chance at establishing a credit score was to get something like a secured credit card. Like you'd have to put down $250 or $500 deposit to get your credit card essentially secured loan. Folks like that, I mean, you didn't have $250 or $500 just to drop at a whim. I don't know. To me, this does seem like it has a lot of promise if it's executed.

Matt Frankel: For sure. The one you are referring to is called the UltraFICO Score.

Moser: Yeah.

Frankel: To be fair, that was a flop. We learned that not only did very few lenders ever pick that up, no banks have embraced the UltraFICO model. It didn't really work out the way the FICO people had planned it. Having said that, a lot of Americans think that every adult in the US has a credit score. I mean, I think I thought that until I became a financial planner. To get a credit score, you have to have at least one reporting account within the past six months to your credit file.

Moser: Yeah.

Frankel: You know how many people don't have that?

Moser: I mean, I don't know the number but I would venture to say it's probably a good half the population.

Frankel: Fifty-three million adults.

Moser: Well, that's not far off.

Frankel: That's a lot.

Moser: Yeah.

Frankel: That 53 million disproportionately includes minorities. That's a big part of why the government is really backing this plan to try to level the playing field a little bit. As you mentioned, a bunch of banks have signed onto this plan, JPMorgan, Wells Fargo, etc. You want to reach consumers that don't have traditional borrowing opportunities based on credit scoring because if you don't have a credit history, a lot of lenders won't talk to you, unfortunately. Right now, it's considering things like consumers' savings accounts and balance history and overdraft history, a record of responsible behavior. This could eventually include things like rent payments, utilities. They're trying to partner with a lot of different sources to come up with an alternate credit model, kind of what FICO was trying to do a few years ago but really wasn't able to get traction on. If they could do that, I mean, you have to walk through tight line between that really effectively becoming a credit score and excluding people.

Moser: Yeah.

Frankel: Because in most cases, you need credit to get an apartment to have a rental history, for example. I mean, I needed to have my credit run when we established electric service here. I'm sure you guys did too.

Moser: Yeah.

Frankel: You want to be able to get as much data to really give an accurate picture as possible without the unintended consequence of excluding even more people because they don't have those things. But no, this is obviously a good thing. Democratizing the financial system is what we've been talking about with all these fintech disruptors on here. You want to bring inclusivity into the financial system. Anything that does that, I'm all in favor of.