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Thousands are flocking to a credit card that helps people repair their bad FICO scores and avoid payday loans

people rely on expensive payday loans to get through hard times.
This credit card could provide a reprieve.
Dan Kitwood/Getty Images

o Millions of Americans with subprime credit scores
dont have access to credit cards or any other reasonably priced
way ofborrowing money.

o Income volatility has doubled in the past 30 years, and
as a result many of these people are unprepared to cover
unexpected expenses that pop up, like medical bills or car

o Instead, when theyre cash crunched, they often turn to
expensive options like payday loans, which commonly charge
interest rates of 400%.

o Thousands are trying a newcredit card thats
fillingthe void left by traditional banks. It uses
analytics to targetsubprime borrowers who are on the
upswing and offers an unsecured credit card with transparent
terms and rates far below payday loans.

If youve got a credit score below 600, chances are youve messed
up. Late payments. Foreclosure. Maybe youve been through a

Getting a credit card in these situations can be pretty
difficult, for obvious reasons: Its not worth the risk to many
lending institutions.

But Americans with bad credit are often the ones that need
loansthe most. In the absence of reasonably priced lending,
many resort to alternatives with exorbitant interest rates to
stay afloat, like payday loans — an industry that
has grown massively over the past decade or so.

Sometimes this works as an expensive stop gap, but often people
get sucked into a
cycle of debt and struggle to come back up for air.

Marla Blow thinks she can help. A card industry veteran
who spent nearly a decade at Capital One and helped run the
credit card and payments division at the Consumer Financial
Protection Bureau, Blow recentlyhelped launch a startup
called FS Card, whose sole
product at the moment is a credit card targeted toward those with
tarnished credit histories.

The card, which iscalled Buildand has
MasterCard branding, enablescustomers to avoid the local
payday lenders sky-high rates andgradually mendtheir
standing in the eyes of the almighty FICO.

FS Cards strategy is to targetdeep subprime customers in
the 550 to 600 credit score range, a group thats largely been
overlooked and forgotten by the big banks, according to Blow, the
companys CEO. By offering transparent rates and fees and low
spending limits to start, Blow thinks she can carve out a
profitable business that also helps people repair their financial

Its off to a good start: Some 50,000 people have signed on in
about a year and a half.

Weve found really good
traction, Blow told Business Insider. Access to mainstream,
reasonably priced credit is still something the underserved
market is very much seeking.

Reduced access

Pictured: Marla Blow, CEO
of FS Card.

to this group plummeted in the aftermath of the financial
crisis and the passage of the CARD
Act of 2009, which introduced an
array of protections and outlawed some of the pernicious
practices that made these customers lucrativeto banks —
think hidden fees, bait and switch interest rates, and poorly
disclosed terms in general.

When the CARD Act prohibited credit card companies from doing
many of the things that lay at the core of their business models,
many pulled out of the market altogether, writes Lisa Servon, a
professor at the University of Pennsylvania whos studied
low-income communities for decades, inher recently
released book, The
Unbanking of America: How the New Middle Class
Survives. Theyve retreated to the safer prime and
super-prime markets.

some evidence from the Federal Reserve Bank of New York that
lending is returning for subprime borrowers with credit scores
below 660. But credit card issuers, like Chase with its Sapphire
Reserve and Citi with its Prestige card, are far more
competing over elite borrowers, falling over themselves to
offer sweet travel enticements and eye-poppingsign-up
bonus points.

The millions of Americans with a checkered
borrowinghistorytypically arent chasing credit to
secure free vacations, but simply to manage unforeseen costs and
gaps in their monthly cash flow.Nearly half of Americans
arent prepared to cover
an unexpected $400 expense.

Without access to credit cards or traditional bank loans, these
people have turned to
alternative lending options instead. The
payday loan industry — wherein people take out a two-week
loan for several hundred dollars that comes with a fee that
to a 400% interest rate on average — now serves 19 million
households out ofsome 20,600 locations across the country,
according to industry group the Community Financial Services
Association of America. Thats more than the
number of McDonalds locations in the US.

Its not just low-income people in poor neighborhoods who are
using these services, but many, many middle class people,
Servon, who
embedded as an employee at a check cashing company and a
payday loan company for her research, told Business Insider.
Many, many of them owned their homes, they had college degrees,
they had stable incomes of $50,000 to $75,000 per year. Yet they
were still facing situations of chronic financial insecurity.

Some people wind up in trouble because they dont manage their
money responsibly. But part of the explanation for this trend is
that income volatility has doubled over the past 30 years, says
Servon. If your income is unpredictable week to week, it can be
difficult to budget, and even more difficult to absorb shocks
like an untimely medical bill, car repair, or temporary job loss.

For someone facing financial uncertainty, its not hard to
imagine needing to borrow $400to get through a short-term
cash crunch.

A solution — for some

The Build
FS Card

FS Cards plastic offering could prove a solution for many stuck
in this financial quagmire.

Servon wrote optimistically about FS Card in her book, noting
that response to the card has been strong, especially among those
who had previously used payday loans.

And thats by design. Blow, who earned her MBA atthe
Stanford Graduate School of Business, took keyfeatures of
payday loans — transparency and low borrowing limits — and
married them with the benefits of traditional credit cards —
lower interest rates, a longer repayment period, and instant

The Build card isnt the first option for borrowers with no
credit history. Usually, experts recommend these borrowers use a

secured credit card — one where the borrower supplies funds
upfront in a type of security deposit, often at least $200,
thats usually identical to the spending limit. Eventually
yourecoup the deposit if your creditworthiness grows, but
it doesnt really provide extra cash flow in the meantime.

The Build card, on the other hand, is unsecured and requires no
deposit, providing a more flexible line of credit from the

But FS Card isnt a charity.Its a business, and it needs
to turn a profit. So the card isnt free, and its not for just

The Build card comes with a $75 annual fee and a starting credit
limit of about $500– not incidentally, the same as the
maximum payday loan amount in many states — which grows as the
borrower proves responsible over time.The interest rate
percentage starts in the upper20s, on the high end for most
credit cards. All the terms are laid out plainly to avoid any

Not everyone earnsapproval, either. Because its client base
is an inherently risky group, FS Card must carefully
vetpotential borrowers.

We look for trends, we look for indicators that might be hidden
on the surface, Blow said. We are very much in a lending
business though, and if we dont do that well, we wont be
there.We cant make bad decisions on the credit side.

On the technical side, this entails behavior modeling analytics
and machine learning to target the right customers. In practical
terms, this means sorting out subprime borrowers whove turned
the corner from those who remain mired with bad habits and
lingeringmoney problems.

Our goal is to enable customers to Build and rebuild
credit with our product, so we are looking for consumers
to have issues in the rearview mirror, Blow said.Fresh
issues, newly troubled credit, and/or growing indebtedness, those
are red flags because it suggests the individual is not yet on
the way up.

In a year and a half on the market, the Build card has extended
$25 million in credit to nearly 50,000 customers, according to

Its a drop in the bucket, at this point, given the millions of
Americans living with damaged credit scores. But the cards
portfolio is growing about 10% each month, and it could prove an
indispensable tool in the future to help many of those people get
their financial house in order.

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