To win top-of-wallet status, card issuers should assess how they reach prospective customers with limited or poor credit history; credit-building cards allow card holders to bolster low credit scores. Additionally, they can provide a valuable opportunity for card issuers to establish relationships with customers at the beginning of their financial journey.

These products include:

  • Secured cards, which typically require deposits as collateral to secure spending and offer a barebones version of the credit card experience, with a primary purpose of improving card holders’ credit scores
  • Student cards, which often require proof of student status and may include benefits focused on school-related spending or building healthy financial habits

Overall, cards should be designed to improve credit ratings for customers with the help of low fees and opportunities for growth. Established credit card issuers should especially consider two elements—a robust rewards program and unique incentivizing offers or benefits—to remain competitive with new credit-building products and services from fintechs.

Corporate Insight’s April Credit Card Monitor Report (subscription required) evaluates both fintechs’ and incumbents’ product positioning strategies by assessing the fees, rates, reward-earning opportunities and other added benefits available with 24 popular credit-building cards—including 13 secured, 10 student and the mass market Apple Card. We reviewed card product pages with uncookied browsers between March 28 and April 14 to capture details and current promotions.

Several student cards provide enticing accelerated reward-earning categories

Distribution of reward earnings by credit-building card type

Reward-earning structures for credit-building cards

Firms that provide enticing rewards on credit-building products will do well by prospective customers, all of whom represent potential growth via product cross-selling over time. The cards covered in our April report take different approaches, with 16 offering a rewards program, and 12 of these including accelerated rewards. Of these, Chase’s Freedom Student card stands out for providing 5% cash back on Lyft purchases, a useful and underutilized category. Variable categories can also prove valuable:

  • The Discover It Student Cash Back card offers 5% cash back in quarterly rotating categories, allowing the firm to quickly pivot to trending categories or timely purchase needs at the start of the school year
  • Bank of America’s Cash Rewards for Students card earns 3% cash back in the category of the card holder’s choosing; customers can change category up to once per month, which further customizes rewards to meet current needs

Targeted offers incentivize responsible payment practices with credit-building cards

Where consumer cards tend to offer comparable reward-earning, initial offers and other benefits in a given category—like cashback or travel rewards—credit-building cards demonstrate various unique, action-based offers that are often designed to incent healthy financial habits. Although the prompted actions—as well as their subsequent rewards—vary, 11 cards carry four types of distinctive offers:

  • The Freedom Student and Deserve EDU cards reward users for setting up subscription memberships
  • The two Discover student cards reward students for earning high GPAs
  • Three cards—the Freedom Student and Capital One’s Secured Mastercard and Journey Student card—reward consistent on-time payments
  • BB&T’s Spectrum Cash Rewards Secured card and Citi’s Rewards Student+ card—no longer promoted online—award bonus cash or points when users redeem rewards

Action-based offers are more common than purchase- or spend-based initial or annual offers

Credit-building cards incentivize with targeted initial spend offers or annual offers

An increasingly competitive landscape drives further innovation

Both large card issuers and fintechs have recently introduced strategic credit-building products or services. Three in particular stand out for unique offerings:

Reaching an underserved market: American Express—in partnership with Nova Credit—enables recent immigrants to apply for any of its personal card products. Newcomers to the U.S. are a significantly underserved population in terms of credit-building products, with 46 million visa and green card holders limited by a lack of U.S. credit history needed for mainstream credit cards and loans. This service improves the credit card application and approval process for some non-U.S. citizens by assessing their global credit histories, making American Express the first large U.S. credit issuer to leverage foreign credit bureau work for card issuance.

Helping rejected applicants rebuild credit: In July, Goldman Sachs introduced a new Path to Apple Card program, which provides automated credit counseling to prospective customers whose Apple Card applications have been rejected. Participants will receive personalized advice on the steps they can take to get approved—such as reducing existing debt by a specified amount or resolving past-due balances—along with follow-up emails that outline their progress and offer a link to reapply upon completion of the goals.

Removing required security deposit thresholds: Chime—founded in 2013 and well known for fee-free mobile app banking services—launched the Chime Credit Builder Visa card, a secured product that functions as a charge card. At time of launch, the product already had over 200,000 enrollees since debuting in beta last year, with a growing waitlist available to its banking customers. The card boasts several standout features:

  • Does not charge interest, an annual fee or late/missed payment fees
  • Helps clients avoid missed payments by automatically paying the card balance from the linked account at the end of each month
  • Lets the security deposit—which has no required minimum—be used to make payments, differing from most other secured cards that lock the deposit away until account closure

Subscribers can retrieve the full report on credit-building cards from our client portal. For access, or for more competitive intelligence on the customer experience that credit card issuers provide to card holders and prospects, check out Corporate Insight’s Credit Card Monitor research services.

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