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If you’re a student or young professional without much credit history, you may have an easier time now qualifying for a no annual fee rewards card with affordable terms. Deserve credit cards, like the Petal credit card, all introduced this fall, assess creditworthiness based on nontraditional data.
There’s just one catch: You may have to divulge a bit more information about yourself than you’re accustomed to sharing with a lender.
What is nontraditional credit data?
Unlike traditional credit cards, the newly revamped Deserve Edu Mastercard (which previously was called SelfScore and available only to international students) and the new Deserve Pro look at a range of nontraditional factors, such as your college major and how much cash you have stashed in your bank account, to suss out what kind of borrower you might be.
“When we assess somebody with no file or a thin file, we don’t look at their credit risk,” says Pia Guter, Deserve’s senior director of marketing. “We look more at your credit potential.”
For cardholders applying for the student version of the Deserve card, “that involves looking at what school you go to, what your major is, are you an undergraduate student or a graduate student.”
A graduate student, for example, may be older and have more savings than an undergraduate.
In addition, “we look at your likelihood to graduate and get a job,” says Guter.
For example, a student who’s earning a science or engineering degree stands a good chance of getting a well-paying job after graduation and may be looked at more favorably by Deserve’s algorithm.
Like other alternative lenders that lean on nontraditional data instead of FICO scores, Deserve also asks applicants for access to their bank statements so it can assess how much money they have available and how much credit they can afford.
“You’re so much more than your FICO score,” Deserve’s website says to applicants.
The trend to consider alternative credit scoring
Until recently, the only lenders who were explicitly using their own algorithms and nontraditional information to assess young borrowers were personal loan and student loan refinancing lenders such as Earnest, SoFi and Upstart. Now, the number of lenders embracing the use of nontraditional data to score borrowers with thin credit files is increasing.
Earlier this fall, for example, New York City-based startup Petal launched a fee-free Petal Visa card that uses nontraditional data, such as non-credit-related bill payments, to help score applicants without a credit history. Similar to the Deserve cards, Petal promises fairer terms than what’s typically available to applicants with limited credit experience.
Meanwhile, conventional lenders have also quietly begun using some types of nontraditional data to gauge consumers’ creditworthiness.
A closer look at the two Deserve cards
In exchange for more detailed personal information, Deserve Edu cardholders are offered a single APR of 19.74 percent, a free year of Amazon Prime Student and a rewards program offering 1 percent cash back on every purchase.
The Deserve Edu card’s APR is higher than the minimum APRs that many student cards charge. However, most of those competitors also advertise maximum rates running as high as 23.99 percent or more.
As a result, students may be able to get a better deal with the Deserve card if they aren’t able to qualify for competitors’ lowest available rates.
The Deserve Pro – the postgraduate version of the Deserve card – requires applicants to have at least some credit history, but it also considers nontraditional data to size up potential applicants.
The Deserve Pro card offers an APR range of 16.99 percent to 23.99 percent (which is about average for a rewards card) and a substantial bonus on travel and restaurant purchases. Travel earns 3 percent cash back, while dining earns 2 percent cash back. All other purchases earn 1 percent cash back.
According to Guter, the use of nontraditional data to score applicants helps Deserve offer competitive cards to people who may either be shut out from credit altogether or might have trouble qualifying for a card with similar terms and rewards.
“We launched our cards because we want to change the game,” says Guter. “We want to make the entry point easier for young people.”
It is easier to get a credit card now if you part with more info
The upshot for consumers is that it’s now significantly easier for people who have been traditionally overlooked by lenders to access loans with similar terms as those offered to people with thicker credit histories.
Applicants should be aware, though, that there’s still a potential trade off in applying for these kinds of loans: In exchange for fairer rates, you may have to part with a lot more information about who you are and how you handle money than you would if you were borrowing from a more traditional lender.
See related: CFPB takes a look at alternative credit data, Student credit card reviews, Rewards credit card reviews