Chime, Apple debut credit score-boosting products - Banking Dive

Dive Brief:

• Chime launched its first credit card Tuesday in an effort to help its customers build their credit history through transactions on items such as gas, groceries and subscriptions.

• Users can transfer funds from a Chime spending account to their Credit Builder Secured Account and charge up to that amount anywhere Visa is accepted. Chime's Safer Credit Builder feature automatically pays the credit card balance on time at the end of each month, then reports the payment to credit reporting agencies.

• The challenger bank is not the only financial services company to roll out a product this week with elements meant to boost consumers' credit standing. Goldman Sachs and Apple on Monday debuted Path to Apple Card, an initiative that offers rejected Apple Card applicants monthly suggestions as to what they need to do to be approved.

Dive Insight:

The popularity of debit led Chime to want to create a credit card that acts more like a debit card. The challenger bank, in a 2015 survey, found 67% of millennials preferred debit cards, which they said felt more secure and less likely to put them in debt. Debit cards by 2018 had accounted for half of all noncash transactions, the Federal Reserve said.

The drawback with debit is that it does not allow consumers to build a credit history, which would make homeownership and financing for big purchases challenging.

"Americans have embraced debit cards for greater control, but this limits their ability to establish or build their credit score," Chime CEO Chris Britt said in a launch announcement, according to TechCrunch. "We created Credit Builder to help our members stay in control and safely build their credit with their everyday purchases."

Unlike many credit cards, Credit Builder has no annual fee, interest or minimum security deposit, the company said.

Chime has been beta-testing Credit Builder for more than a year. The program helped users increase their credit score by 30 points, on average, during the test period, the challenger bank said, according to TransUnion data.

Chime has opened a Credit Builder waitlist to all its banking customers and will add members to the service weekly, the company said.

The idea for a credit-building product may have stemmed from Chime's subsidiary Pinch, which the company acquired in 2018. PinchRent helped its users increase their credit scores by reporting on-time rent payments to credit bureaus.

Boosting its ranks, not its risk

Path to Apple Card, meanwhile, is meant to give the tech giant a way to approve more customers without Goldman Sachs lowering its underwriting standards and taking on more risk.

Previously rejected applicants may receive specific advice on how much debt they would need to pay off to be accepted, or which past-due payments are creating credit problems. Participants will not receive goal credit scores they would need to reach, a Goldman Sachs executive told American Banker.

Customers would receive emails detailing their progress toward acceptance. Those who meet the targets within about four months will get an email containing a link allowing them to reapply, the Goldman executive said.

Goldman entered the credit card market last August with the Apple Card’s rollout. As of March, the bank held $2.08 billion in card loans, according to a securities filing. Two months after the card's debut, Goldman Sachs CEO David Solomon called Apple Card "the most successful credit card launch ever."

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