When I moved to Singapore, I applied for a credit card with an attractive sign-up bonus. I was perplexed by the rejection; as a lawyer working for an international bank, I assumed my credit profile would be attractive. Inquiring about the decision didn't help as customer support’s response was akin to “it is what it is”. Though another bank approved my application, my ego still took a hit.
Ever since, I have kept a close eye on cards and tools to help build credit ratings. Recently, two new products caught my attention, the Path to Apple Card and US challenger bank Chime’s Credit Builder. Here’s a quick snapshot of both and why they’re relevant.
Path to Apple Card
If my experience is any indication, there’s not much insight gained from a credit card rejection. Without this knowledge, it’s difficult to build up the profile necessary to successfully apply in the future.
The Path to Apple Card addresses the situation, highlighting the reasons behind the rejection and outlining the steps to complete on the road to titanium card envy. Here’s how it works:
Invitation Only: the program isn’t advertised or widely available as enrollment is limited to a chosen few. It’s unclear what the requirements for selection are or whether the company is testing the feature before a wider roll out.
Customized Coaching: monthly emails are sent to help track progress towards personalized goals.
Checklist: potential card holders will have to maintain good financial habits. For example, Apple suggests making all payments on time, lowering debt levels and paying past-due balances.
Deadline: once Goldman Sachs (the card issuer) is satisfied that the requirements are met, an invite is sent to reapply within 14-days, failing which the application process may revert back to a conventional assessment.
My Take
The program is not an isolated attempt at financial coaching. Rather, it falls within a broader strategy of personalized advice.
Take the app for instance. It shows purchases in real-time which is arguably a better way of maintaining disciplined buying habits as compared to monthly statements. In addition, there’s a weekly and monthly report on spending as well as a category breakdown. Apple also allows card users to visualize the impact of interest on their debt, switching between colours depending on the amount paid. To cap things off, the Path to Apple Card introduction is complemented with a revamp to the financial health website, clarifying the factors Goldman considers when assessing applications.
Chime Credit Builder
Like Apple, US challenger bank Chime helps customers build up credit worthiness. According to the company, millennials prefer paying with debit for a variety of reasons, not least of which is the wariness towards debt. However, this delays building credit profiles as no payment information is reported to the bureaus. In addition, there’s always the case of people with poor credit.
The Chime Credit Builder addresses both scenarios in a simple way. Here’s how:
Chime customers fund a Credit Builder account with money from their Spending account.
The funds are used as collateral for charges made on the card.
At the end of a month, the money from the account is used to pay the credit charges.
When the payment is made, Chime reports the information to TransUnion, Experian, and Equifax, burnishing a customer’s credit history.
Like the Path to Apple Card, this is also by invite only for now.
My take
Although Chime’s Credit Builder isn’t a new product in banking, the features are what make it distinguishable. The easy integration between the Chime Spending and Credit Builder accounts makes moving money simple.
What’s more, the program dispenses with many of the conditions associated with secured credit cards. First, there’s no “hard” credit check to enroll, meaning the status at bureaus won’t be impacted by the application. Next, Chime spares customers from common secured card fees like annual, application and other administrative ones. There’s also no security deposit. Finally, as customers can only spend up to the amount deposited in the Credit Builder account, there’s no chance of racking up large charges and corresponding interest payments.
The Point Is
The timing of the introduction of these features is the story here. Considered separately, they are incremental advancements in product offerings. Together, they highlight how newcomers in the banking space are helping people get a better understanding of their credit worthiness and offering free tools to improve their scores. Ideally, the industry replicates the model widely.
Images courtesy of Chime. As always, thoughts are my own.