There’s a new player who’s trying to shake things up in the credit card industry. Deserve just raised $17 million in funding by Sallie Mae, Accel, Pelion, Aspect Ventures, and Mission Holdings. That will provide much-needed capital as they try to prove they can succeed with a unique business model.
Beyond the FICO Score
Deserve is really trying to appeal to Generation Z and international students – two demographics that typically don’t have credit scores. And, as we have discussed before, without a credit score you can’t get a credit card…which means you can’t build credit…which means you can’t…ok you get the point.
It can seem like a hopeless cycle for many young people.
In the past, I’ve recommended secured cards as a young person’s best choice for building a credit history and credit score. However, Deserve has another solution. For their credit cards, they base card eligibility off of more than just your credit score. They look beyond your FICO score to other factors, like your bank account health, education history, future employability, and projected potential earnings.
The quote below is taken directly from their website:
At Deserve, you’re more than your credit score. We use non-traditional data points and advanced machine learning algorithms to determine credit eligibility.
A Small Step Towards, Hopefully, a Better Future
Back when the FICO score was first introduced, lenders learned it was much easier to use that one arbitrary number to determine a borrower’s trustworthiness than going through the time-intensive process of traditional underwriting.
In short, lenders became lazy. This was especially true of mortgage lenders, as they were the ones who had the most time and money to save by moving to the FICO score model.
But this may be another problem that technology can help solve.
In the age of online banking and bill pay, lenders could honestly gain instantaneous access to a treasure trove of financial data, if borrowers gave permission to access it. No more need to track down stacks of paper bills and bank statements.
Research that, in the past, could have taken days or weeks to complete could now be accomplished in hours. It really is ridiculous that with all the financial data so easily available today, we still haven’t moved past the simple credit score as the only means of determining someone’s creditworthiness.
There are some lenders that do, in fact, offer traditional underwriting for their mortgages, but they are few and far between. I would love to see a future where more lenders with this business model were available to young borrowers.
