Living with credit

New ‘Petal’ card uses nontraditional data to size up borrowers

Kelly Dilworth

It’s getting easier to qualify for an affordable card without a traditional credit score.

A new, fee-free credit card launched last week promising lower rates and better terms than the average unsecured card for consumers with no credit history. Rather than rely on VantageScore or FICO to gauge consumers’ creditworthiness, the new Petal Visa card uses its own proprietary data crunching system – utilizing a range of nontraditional data points – to size up potential borrowers.

For example, Petal looks at applicants’ bank statements to determine whether they have a stable enough cash flow to pay their bills. It may also consider saving and spending histories to get a sense of how responsible a person is with money.

Borrowers who are approved for the new card – which is currently available by invitation-only – could qualify for rates as low as 17.99 percent to a maximum APR of 24.99 percent. Those rates are high for longtime credit users who have built a robust credit history, but for younger borrowers with thinner files, they’re relatively low. According to’s latest rates data, the average median card APR for all cardholders is 19.75 percent, while the average maximum rate is 23.35 percent.

Petal also promises cardholders will never be charged a fee – even if they pay a bill late, go over their credit limit or use their card abroad. It hasn’t yet posted a terms and conditions page to its website, though, so it’s not clear what other charges cardholders might pay – such as penalty rates or cash advance APRs.

Petal’s unconventional underwriting system is similar to the alternative scoring systems used by other nontraditional lenders catering to millennials and promise fairer terms than other lenders. For example, Affirm offers an online lending system – similar to a virtual credit card – that allows you to charge products from participating stores. Instead of relying solely on credit information to assess creditworthiness, Affirm looks at a variety of data sources when you apply, including your social media footprint and digital trails of information you leave behind.

Similarly, personal loan financiers, such as Earnest, SoFi and Upstart, look at borrowers’ job and education histories as well as their cash flow and payment habits in order to offer loans at cheaper rates.

Traditional credit card lenders have also begun quietly using nontraditional data to evaluate borrowers with limited credit histories. For example, FICO pitched its alternative credit score, the FICO XD, specifically to credit card issuers wanting to know more about consumers with limited credit histories. A 2015 survey by TransUnion, meanwhile, found that 75 percent of credit and debit card issuers used some form of alternative data to evaluate potential borrowers.

However, the new Petal card appears to be the first credit card that not only explicitly embraces alternative data to score potential borrowers, but also advertises its alternative methods. According to the Chicago Tribune, the alternative lender Avant – which also uses alternative data to score borrowers with thin credit files – has also discussed plans to launch a MasterCard sometime in 2017. But so far, it hasn’t done so.

If the new Petal card is successful, it could inspire other lenders to offer more affordable cards to people without a traditional credit score – particularly since the Consumer Financial Protection Bureau has signaled in recent weeks it supports (for now) companies using nontraditional methods to score potential borrowers.

Earlier this month, the consumer watchdog sent its first ever ‘no-action’ letter to the alternative lending company Upstart, indicating that it would not recommend any supervisory or enforcement actions against the company as long as it provided the CFPB with information about its practices. The letter was intended to encourage Upstart to continue innovating and finding new ways to evaluate potential borrowers who have otherwise been unable to access affordable credit. It also signals to other lenders that the CFPB is interested in encouraging innovation in how lenders evaluate borrowers.

In addition, the CFPB previously expressed hope that alternative data could help lenders identify borrowers who are worthier of credit than their credit files suggest and help ease people into the traditional credit system. “For some consumers, the use of unconventional sources of information, called ‘alternative data,’ may be a way to gain access to credit to build a credit history,” said the CFPB in a February 2017 news release. “Alternative data draws from sources such as bill payments for mobile phones and rent, and electronic transactions such as deposits, withdrawals or transfers. This information could show a track record of meeting obligations that may not turn up in a credit history.”

Your bottom-line: If you don’t have much of a credit history, your options for obtaining affordable credit are still pretty limited. But the number of cards you have to choose from could be poised to expand. If you’re interested in the new Petal Visa, you can request an invitation and wait for a spot on the wait list to open up.

Editor’s note: Starting October 2018, Petal opened applications to any consumer directly on its website.

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