TomoCredit rolls out first FICO-free credit card
https://www.americanbanker.com/news/challenger-bank-rolls-out-first-fico-free-credit-card
Update 3/20
Sorry about the paywall folks. Here's another article on the same subject:
@Aim_High wrote:
@Anonymous wrote:Hello! I recently just turned 18 and am new to the whole credit card world. I don't have a credit score yet which makes it really difficult to get any card. I was told by a friend about a new credit card company called Tomo which doesn't require credit history. Anyone else have experience with them? I appreciate any insights or feedback you can share. Also if you have any other suggestions I am open to those as well. Thank you!
Welcome to My Fico Forums @Anonymous!
There have always been ways for people like yourself to build credit before Tomo came along. (See my last paragraph for suggestions.) But let's talk about the Tomo disclosures first.
If it sounds too good to be true, it probably is.
As @Anonymous said, the "debit" card designation works to Tomo's advantage. This is basically a 1% cashback debit card (although they say it works like a 'charge card' so it just autodebits 1x monthly) unless you are willing to market it to your friends and family to receive the "up to 20%" cash back based on referral bonuses. You're "working" for Tomo for a couple of dollars in cash back. Plus, 'debit' cards don't fall under the consumer protections of the 2009 CARD Act.
What most alarms me is the potential for data-mining and privacy violations. Similar to the Experian BOOST that is being advertised, you are giving a third party permission to access your banking account data. As a minimum, we know they see the account balances when you apply for credit, as they state that is part of what determines your credit limit. But you're also allowing them to store your login credentials to your bank account. That's creepy and unusual. RED FLAG. And apparently, they continue to monitor your banking account (instead of your credit report) since it is their "primary input for underwriting." Reading the fine print and legalese, while they don't say what exactly they collect or exactly what they do with it, you can be sure they profit from it. You don't have to give up your privacy for a piddly 1% cash back. Reputable credit issuers don't require you to maintain linked banking accounts as a condition of service. "To sustain a card that doesn’t require a credit score, deposit, or fee of any kind, your bank balance becomes a primary input for our underwriting. This means at least one bank account should be linked at all times." (https://tomocredit.com/privacypolicy)
According to this article from American Banker about the Tomo founder Kristy Kim and how the company started, "TomoCredit asks applicants to let it connect to their bank account using the data aggregator Plaid. The underwriting team analyzes six months’ worth of cash-flow data, which includes looking at the average balance, any overdrafts, and the largest spending categories (school, books, clothing). They look for consistency." That's a lot of personal data they are accessing to by-pass the credit history requirement of most cards. https://www.americanbanker.com/news/startup-caters-to-millennials-tired-of-paying-in-cash-like-a-gangster
Tomo claims they make all their money through interchange fees so they don't charge any fees or interest. Plus they pay 1% or more cash back. Something doesn't add up. If this were a viable business model without making back-end money from marketing your private data, it would have been done a long time ago.
As per their privacy policy, "We only share information ... or to fulfill business obligations." We may process or share data based on the following legal basis ... We may process your data when it is reasonably necessary to achieve our legitimate business interests." That's cryptic and can mean a lot of things. What business interests or obligations have they entered into with their data partners???
There are many better and proven options for establishing a credit history using the "old fashioned" way. Student credit cards. Opening a checking account and establishing a banking relationship with a lender before applying for a credit line with them. Retail store or gas station credit cards usually have more lenient underwriting and can help you build credit. Stores often offer "90-days same-as-cash" or similar payment options which are short-term credit lines that will usually show up on a credit report. A small car loan can build credit history since the loan is secured with a vehicle that can be repossessed if you default. I tend to not recommend "Secured" credit cards since they have typically been used as a tool for rebuilding on a bad credit history and their presence on a credit profile might make a lender draw the wrong conclusions, but they can be a short-term option to build new credit. Similarly, taking out a small and short-term "Savings Secured Loan" (where deposits are frozen as a security until the debt is repaid) can be another way to build credit.
This is a brilliant post, and should be made available to everyone, not just first timers, looking for credit. Its emphasis on the lack of privacy, compromise of security (login/pw) and twisting of common terms should be a tool for everyone to be more savvy about applying for anything where financial records may be at risk.
Bravo Aim_high!
