Without a credit rating on file with the three major credit bureaus (Equifax, Experian and TransUnion) or a poor credit rating, consumers face difficulties in their financial lives. These consumers often pay higher rates when they do qualify for loans, face difficulty or are rejected when applying for credit cards and rental apartments, and have to put down security deposits for things like utilities and smartphones.

According to credit rating firm Experian, 62 million Americans have less than 6 months of credit history or less than 4 credit accounts. These consumers are called “thin file, and they are joined by 26 million Americans who have no credit score at one of the three credit bureaus. Traditional banking products and services are not set up to serve their needs and thus they are often cut out. 

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In addition to the millions of Americans with little credit, over 10% of consumers have poor FICO scores (considered below 550). Many of these individuals also encounter difficulties obtaining credit. These consumers are trying to rebuild their credit after suffering unexpected expenses, medical emergencies, unemployment, investment losses, and other catastrophic events. Often for them, finding the right option to get back on track through the financial system can be difficult.

Though individuals with “thin files,” no credit or poor credit can come from all backgrounds, certain populations struggle to build credit more than others. Many fintechs are find opportunities following customer demographic groups through credit building products:

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• High School or College graduates who have never opened a bank account
• Immigrants who live and work in the U.S. but lack a credit history here
• Millennial/Gen Z who want alternatives to traditional banks and/or credit cards
• Working adults with limited credit histories

Two of the most common credit building products are secured credit cards and credit builder loans. Both products allow borrowers with poor or no credit to gain access to credit cards and loans and build credit up scores as they use them. 

A secured credit card can be a good way to establish or rebuild credit. These card providers require that the cardholder deposits money with the card issuer as a security deposit, generally between $200-$500. The deposit protects the issuer from losing money, while also making it easier for consumers with bad credit or no credit to qualify for the card. 

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The cardholder must keep track of the charges they make on the card every month to avoid either going over the card balance or the minimum amount that they can pay that month. Some cardholders use direct deposit to help keep their spending and payments in control. The secured card issuer reports payment transactions to the credit bureaus regularly. Over time that can help the borrower build their credit.

A credit builder loan helps a borrower build credit by making payments toward the loan. The lender deposits the money the borrower wants to access into a savings account, then, the borrower makes payments to ‘repay’ the loan amount (typically $1,000 or less). When the loan is paid off the borrower can access the money.
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Though this structure seems the opposite of most loans, credit builder loans are designed this way to help borrowers build credit. Similar to credit builder cards, loan payments are reported to the credit bureaus. Credit builder loans are often offered by smaller banks and savings and loans, in addition to fintechs like neobanks.

Fintechs who introduce credit builder cards and loans are offering unique products and services tailored to their customer needs. Offering credit building products can build customer loyalty. As an example, some credit builder card providers enjoy near-perfect ratings on app stores. In addition, consumers using a credit builder card program are often long-term users given the time to complete a payback plan to build or improve their credit history. 
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If you’d like to offer your customers credit products like credit builder cards or loans, Synapse can help. Our multiple credit products provide the building blocks to construct multiple types of credit offering, with Synapse as your built-in lender of record. Credit Hub offers Open Loans to Revolving Loans, to Credit Builder Loans to Buy Now, Pay Later, our platform provides flexibility to launch innovative experiences for your users.



*Synapse Financial Technologies, Inc. is not a Bank.

Deposit, Banking and Card services are provided by Synapse Financial Technologies, Inc.’s partner banks, Members FDIC.

Credit services are provided by Synapse Credit LLC, a licensed U.S. lender in designated States.