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It will soon be possible to get a credit card even if you have no credit.

As early as fall this year, banks like JPMorgan Chase, Wells Fargo and US Bancorp will launch a collective pilot program that will use data from applicants’ savings and checking accounts to increase their chances of getting a credit card, the Wall Street Journal reported.

The program will contain data from various banks and is intended to help those who are financially responsible but have not been able to apply for loans and obtain credit cards. This signals a major shift in access that could help millions of American adults build and strengthen credit.

“It can definitely be a game changer for those who may not have been able to get credit before,” said Greg Giardino, certified financial planner and advisor at JM Franklin & Company in Tarrytown, New York. “I think it’s a great idea.”

What You Should Know About Credit Scores

A credit score is basically an assessment of risk that financial institutions use to determine how to provide credit to consumers. Without a credit score, certain things like credit cards and bank loans can be difficult to access, and lenders do not give these borrowers favorable terms.

People who only pay with debit cards or cash, or are new to the US, often have no creditworthiness and may rely on things like payday loans for credit.

According to Fair Isaac Corp., inventor of the FICO metric, there are approximately 53 million U.S. adults who do not have traditional credit scores. Black and Hispanic adults are more likely to have no traditional creditworthiness than their white or Asian counterparts, according to a 2015 report by the Consumer Financial Protection Bureau.

A FICO credit score is calculated using factors such as payment history, total debt, loan types, new loan, and loan duration. Income, savings, utility bills, direct debit transactions, or your job status are not taken into account.

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“The way the system works has always been a bit of a catch,” said Rutger van Faassen, Head of Product and Market Strategy at FBX at Informa Financial Intelligence. “You need to have a good credit score to get credit, right?”

He added that this was a problem for immigrants too, and one he was facing – when he moved to the US from the Netherlands 15 years ago, he almost had to start from scratch despite borrowing in another country .

Of course, there are a few ways to build credit without a credit card, such as: B. Using a lender, using a service that includes renting a credit report, or paying installment loans (student debt, car loans, or mortgage) on time. However, in general, having a credit card and using it effectively is best to build solid credit over time.

Credit cards can be a valuable financial tool

According to Giardino, if used properly, a credit card can be an important and helpful financial tool.

For one, a credit can be helpful for budgeting as it is an easy point of reference for your expenses, he said. It can also help those with limited cash flow to pay for essentials when they need it instead of waiting for a paycheck.

Many cards offer perks that give you extra points or money back for certain purchases.

“That can be very helpful and useful,” said Giardino.

Using a credit card properly – paying in full and on time every month – will improve your credit score. A solid credit rating can save consumers in the long run when they get other loans.

“Auto loans, mortgages, and any type of borrowing you can think about have a lot to do with that score,” said Lawrence Sprung, CFP, founder and financial advisor at Mitlin Financial in Hauppauge, New York.

A good credit score, usually 670 or higher, could save a borrower thousands of dollars over the life of the loan and repayment, Jump said.

This is because people with better credit scores are considered less risky to lend and receive better terms, e.g. B. Lower interest rates when borrowing.

But they are also associated with risks

Of course, there are also pitfalls associated with credit cards, and if not used effectively, they can affect creditworthiness.

If someone spends too much and is unable to pay out the full balance or pays their bill late, the interest rate is high and the debt is lower.

According to Sprung, banks and other financial institutions should help ensure that people who receive credit cards for the first time use them wisely.

“Whether or not you have a credit score, it is important to have that educational component,” he said, adding that it is especially important as those who don’t have a traditional credit score but want credit cards , Must have banking relationships.

It also means banks have the option to encourage sub-banks or non-banks to develop a relationship with them, he said.

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