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Credit Is More Accessible Than Ever — but Is That a Good Thing?

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Fintech is taking the banking world by storm, and there’s both good news and bad.

The days of going to your local bank branch and filling out a loan application may be numbered. Now, if you want to get a mortgage loan or a car loan, there are dozens of websites where you can type in your information and receive offers within a matter of minutes. 

Often, these lenders offer credit to folks who wouldn’t be approved by a traditional bank, and sometimes they even offer lower rates.

Image source: Getty Images

Wider access to credit means that underserved populations, such as low-income consumers, immigrants, and rural populations, have a better chance of affording a home or a car or simply covering an unexpected emergency without falling into unmanageable debt thanks to sky-high interest rates. 

However, in its most recent Credit Card Market report, the Consumer Financial Protection Bureau (CFPB) warned that this increase in access comes with its own set of risks and unintended consequences, such as the potential for discrimination.

How technology is increasing access to credit

This increase in access is largely thanks to the fintech industry, which has leveraged increasingly sophisticated technology in fields like machine learning and data analysis to make the lending process more efficient.

A proportion of applicants who are rejected for having no credit or bad credit would actually have repaid their loans on time. Unfortunately, their credit score alone didn’t reflect this ability and willingness to repay. 

Online lenders and start-up credit card companies use additional data and new algorithms to identify those no-credit and low-credit consumers who are likely to repay their loans. They then lend to them, often at far more reasonable rates than they’d get elsewhere. 

By using alternative data such as payment history from utilities, phone, or online services, insurance claims, and more, these fintech companies can paint a more holistic picture of how risky each loan would be.

Previously, the only remaining option for many of these consumers was to borrow from payday lenders and the like, which approve nearly anyone, but only because they charge astronomically high interest rates. Now, some low-credit consumers may instead be approved by online lenders at reasonable rates.

How online lenders and credit card start-ups impact consumers

A fintech lending study, published by the Federal Reserve Banks of Philadelphia and Chicago, shows that online lenders place some subprime borrowers in much higher rating categories. 

For example, in 2015, more than 25% of borrowers who received a B-grade from a major online lender had subprime credit scores. The lender used a scale from A to G, with A being the highest. What’s more, the study found that given the same risk level, borrowers would likely get a lower rate with the online lender.

If you’re wondering whether these online lenders are lending to people who can’t afford to borrow, the answer appears to be no. The study found a high correlation between the online lender’s borrower rating system and loan performance, and the rating grades do a good job of predicting who will become delinquent on their loan within one year.

As for credit cards, fintech is just barely starting to enter the market, so the data is still unclear. A number of start-ups now offer cards that use alternative data to approve consumers with no credit at reasonable rates, sometimes with no fees attached. 

One hot new credit card marketed toward millennials and Gen Zers with no credit even offers cash-back rewards. This came under fire from critics who argued that it is irresponsible to offer rewards on a credit card designed to help young folks build credit. After all, cash-back rewards can encourage cardholders to overspend, and new cardholders may be tempted to rack up a balance, landing them in debt and damaging their credit from the get-go. There’s another new rewards credit card geared toward students that requires no credit history, doesn’t charge a security deposit, and allows international students with no Social Security number to provide alternative documents to verify their identity.

Credit cards get into more dangerous territory than loans because they tend to come with high interest rates, and make it extremely easy to mindlessly swipe away and accidentally land yourself in thousands of dollars of high-interest debt. What’s more, loans are often used to make necessary purchases like a car, or investments like a house, whereas credit cards tend to be used for non-essentials like shoes and video games. 

On the other hand, many of these credit cards give underserved populations the chance to build credit in what is arguably the easiest and cheapest way possible — using a credit card regularly and paying it off each month.

The discrimination inherent in fintech algorithms

As it turns out, machines, like humans, can be biased. After all, biased humans create them. Fintech lenders that use artificial intelligence to develop their algorithms aren’t immune.

A 2018 study done by the University of California, Berkeley found that fintech lenders charge Latinx and African-American borrowers interest rates that are six to nine basis points higher. In the end, these groups pay between $250 million and $500 million more per year in mortgage interest.

However, face-to-face lenders also charge these borrowers higher rates. In fact, face-to-face and fintech lenders both tend to implement this bias equally, proving that the algorithms mirror the biases held by the people who create them. 

One example of how this plays out is that fintech lenders might use additional information such as geographic locations to determine mortgage rates for potential borrowers. This can be a basis for racial bias in cities that tend to be segregated by race. However, physical banks can implement this same process by providing different rate sheets for different branch locations.

There is a bright side to fintech lending when it comes to discrimination. The study found that while physical banks tend to reject minority applicants at a higher rate than white applicants with the same credentials, fintech lenders don’t discriminate when it comes to whether or not applicants are approved or rejected. This might be due to the increased competition online lending has introduced and the ease with which borrowers can now shop around for the best loans.

Increased access to credit comes with its own set of dangers and pitfalls, and it’s important that we stay vigilant as fintech continues to encroach on traditional banking. However, new banking technologies also have the potential to provide affordable credit to underserved populations and push for greater equality.

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Letter: Vote for Kiesha Preston | Letters

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The residents of Roanoke, Virginia, need to get out of the box of voting based on party affiliation. It’s time to vote for the best candidate to do the job.

Kiesha Preston is running as an independent and is the best choice for Roanoke City Council. When she was only three years old, she was troubled because a local Kroger store removed the kiddie carts. She asked me how to get them back so she could shop beside me. I told her to go to the manager and she did. She stated her case, and a few weeks later those kiddie carts were back in the store.

Kiesha also has presented a bill to Congress that was approved. The Virginia Domestic Violence Victims Protection Act prevents domestic violence victims from not being able to rent an apartment because of bad credit as a result of their abuser ruining their credit.

These are but two examples of Kiesha’s tenacity and getting results. We need people on council who have no agenda and are truly willing to work for the least of us.

Kiesha is not intimidated by those in power and will hold her own to help those who cannot help themselves. This is why she is the right person to get the job done.

Please do not be discouraged because you are tired of the same old same old where parties are concerned. You have another choice so please vote for Kiesha Preston. She has been working tirelessly on behalf of the people without being elected to an official office. Just imagine what she can do once she is officially on City Council.

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This One Credit Card Will Get You the Most Cash Back Right Now

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Let’s admit it, choosing the right credit card can be a stressful process. There are so many variables to consider—from annuals fees to credit score requirement—not to mention the various rewards and benefits each card offers, and how those align with your lifestyle and spending habits. Then there are those hidden fees and interest rates you have to reckon with. In other words, it takes a lot of work to make a truly informed decision when it comes to choosing a credit card that’s right for you. Perhaps a good cash back program is high on your credit card priority list because, well, who doesn’t like some extra money in their pocket?

To help you decide on the credit card that is going to get you the most cash back, the experts at personal finance site WalletHub compared more than 1,500 current credit card offers. From that large pool, they narrowed down the field to the cards that offer cash back rewards, comparing those offers based on initial bonuses, rewards earnings rates, annual fees, and more. From that analysis, here are the best credit cards that will get you the most cash back right now. And for more money matters, check out This Is the State Where Your Money Is Worth the Least.

8

Alliant Cashback Visa Signature Credit Card

Best for: Cash back on all purchases

Cash-back rate: 2.5 percent

Annual fee: $0.00 for the first year; $99.00 after that

What kind of credit you need to get one: Excellent

Learn more about the Alliant Cashback Visa Signature credit card here.

If you are worried about having buyer’s remorse after choosing a credit card, put that into perspective by checking out What You’re More Likely to Regret Than Anything Else You Do.

7

Discover It

Best for: People with bad credit

Cash-back rate: 1-2 percent

Annual fee: $0.00

What kind of credit you need to get one: Bad

Learn more about the Discover It credit card here.

6

U.S. Bank Cash+ Visa Signature Card

Best for: Cash bonus for good credit ($200.00)

Cash-back rate: 1-5 percent

Annual fee: $0.00

What kind of credit you need to get one: Good

Learn more about the U.S. Bank Cash+ Visa Signature Card here.

And to make sure you have money to pay off those monthly bills, avoid The Biggest Career Mistake You’ll Ever Make, According to Experts.

5

Chase Freedom Unlimited

Best for: No APR on purchases

Cash-back rate: 1.5-5 percent

Annual fee: $0.00

What kind of credit you need to get one: Good

Learn more about the Chase Freedom Unlimited credit card here.

And for more things that will help you and your family stay on the right financial track, check out The No. 1 Sign You Shouldn’t Buy That House, According to Realtors.

4

Capital One QuicksilverOne Cash Rewards Credit Card

Best for: People with limited-to-fair credit and looking for low annual fee

Cash-back rate: 1.5 percent

Annual fee: $39.00

What kind of credit you need to get one: Fair

Learn more about Capital One QuicksilverOne Cash Rewards Credit Card here.

3

Citi Double Cash Card—18 month BT offer

Best for: Flat-rate rewards

Cash-back rate: 2 percent

Annual fee: $0.00

What kind of credit you need to get one: Excellent

Learn more about the Citi Double Cash Card here.

2

Capital One Savor Cash Rewards Credit Card

Best for: Dining and entertainment

Cash-back rate: 1-4 percent

Annual fee: $95.00

What kind of credit you need to get one: Good

Learn more about the Capital One Savor Cash Rewards Credit Card here.

1

Blue Cash Preferred Card from American Express

Best for: Most cash back overall

Cash-back rate: 1-6 percent

Annual fee: $0.00 for the first year; $95.00 after that

What kind of credit you need to get one: Good

Learn more about Blue Cash Preferred Card from American Express here.

And for more helpful information delivered to your inbox, sign up for our daily newsletter.

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Possible Raises Series B and Moves Fully Remote | State

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SEATLLE, Oct. 20, 2020 /PRNewswire/ — Possible raises $11 million in new equity funding to expand the team and to provide additional products for its customers. Union Square Ventures led the round, with participation from existing investors Canvas Ventures, Unlock Venture Partners, Columbia Pacific Advisors, Union Bay Partners, Tom Williams, and FJ Labs. The company has also secured $80 million in new debt financing from Park Cities Advisors.

Furthermore, the company is now fully remote and recently onboarded software engineers from across the US and the globe. Possible is committed to distributed work and actively recruiting for a number of other remote roles.

Possible provides friendly access to capital and a simple way to build credit for people who otherwise would get a payday loan or get hit with a bank overdraft fee. The company uses real-time financial data, rather than a credit score, to qualify customers and provide funds instantly through its iTunes and Android apps. Unlike payday loans or overdraft fees, Possible loans are paid back in small installments over multiple pay periods to allow customers to catch their breath. By reporting on-time payments to the credit bureaus, Possible enables its customers to build credit history and eventually qualify for cheaper, longer term financial products. On average, customers with low credit scores see their scores increase by 70 points within 4 months.

Tony Huang, Possible’s CEO explains, “So many people who live paycheck to paycheck can’t afford to build credit history. We’re helping them do it for the first time while providing them with a friendlier and more affordable small-dollar loan.”

Since launching in June 2018, Possible’s given out loans to hundreds of thousands of customers, helping meet short-term cash needs while building credit history or establishing credit for the first time. These customers, often with bad credit or no credit history, are underserved by traditional banks. Possible fills that gap and provides financial access to those who need it most while giving them the means to climb their way out.

Gillian Munson, Partner at Union Square Ventures, explains the thesis behind their new investment, “Through tech innovation, data-driven insights, and a focus on the customer, Possible is well on its way to winning the hearts and minds of both consumers and regulators alike, and building a trusted brand that endures.”

A 2019 Experian study shows 34.8% of consumers are subprime and can’t access money when they need it. They pay $106 billion in punitive fees each year to the existing financial system for short-term credit products. These consumers are trapped in predatory debt cycles of payday loans and overdraft fees without the means to rebuild their credit or improve their financial health. While there has been a number of new tech-enabled products in this space, most lead to similar debt cycles and don’t address the harder issue of improving long-term financial health. That’s where Possible comes in.

Since the company is now fully remote, Possible is actively hiring talent across the globe. Tyler, Possible’s CTO, explains, “Being fully distributed allows us to access the talent pool of the entire world. Our success so far is a reflection of the quality of our people, and we believe hiring globally will allow us to find exceptional people to join us in achieving our mission.”

About Possible

Possible is a fintech company based in Seattle, Washington. The company provides a friendlier and easier way for customers to access capital while also building credit history and improving long-term financial health.

About Union Square Ventures

Union Square Ventures is a thesis-driven venture capital firm based in New York City. USV manages over $1 billion in capital across seven funds and focuses investments in portfolio companies with the potential to transform important markets.

About Park Cities Advisors LLC

Park Cities Advisors LLC (“PCA”) is a privately held, SEC-registered alternative credit manager based in Dallas, Texas. PCA is focused on private lending across the specialty finance and FinTech sectors and provides debt capital to companies across a variety of industries through asset-based financing transactions.

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