Banks Plan on Issuing Cards to People With No Credit Scores

A day after it was reported that more consumers are paying off their credit balances than at any point this century, a number of financial institutions are planning on sharing data to help consumers without credit scores gain access to credit cards and other types of loans, according to a published report. The move, part of an effort backed by the federal government, is aimed at the 53 million Americans who do not have traditional credit scores because they lack a credit history or have never applied for a loan or other form of credit.

A number of the nation’s largest banks will begin sharing information about consumers’ checking and savings accounts with one another, allowing for decisions to be made based on overdraft histories as well as balances that are carried in those accounts. Those 53 million people have been cut off from the lending market, and this initiative could dramatically expand the number of individuals with credit cards, student loans, auto loans, and mortgages.

The initiative is part of the Roundtable for Economic Access and Change, or Project REACH, which was started last year by the Office of the Comptroller of the Currency, a federal regulator that oversees national banks like those who have agreed to start sharing account data.

For the ARM industry, this would likely lead to an increase in the number of collection accounts. Even if the delinquency and default rates on loans and credit cards made to individuals with no credit scores are approximately the same as the rates for other consumers, the number of accounts that go into collections would likely go up. If the delinquency and default rates for those consumers is higher than for those with a credit history, then even more accounts would be in need of collecting.

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