While subprime lenders have been gaining access to credit at a higher rate than historically typical, one fintech out of Fort Worth, Texas is hopeful Machine Learning technology can help establish creditworthiness to ensure they don’t lend out more than consumers can afford, but at the same time, provide them with a much needed extended line of credit.
Elevate, which specializes in serving nonprime borrowers, is working to partner with a bank to offer a credit card with higher limits than currently available on the market to this segment of the population, reports Business Insider.
Specifically, Elevate is targeting 170 million nonprime consumers, or, the “New Middle Class” in the U.S. and UK, as the firm is reportedly referring to the bracket of consumers.
Since its founding in 2005, Elevate has loaned 1.8 million customers nearly $5 billion.
A 2016 survey conducted by the Fed asked respondents how they would pay for a $400 unexpected expense, like a trip to the emergency room or a broken phone. Nearly half of respondents said they would either have to borrow or sell something, or they would be unable to cover the $400 expense entirely.
Earlier this year, Jonathan Walker, executive director of Elevate’s Center for the New Middle Class, pointed out how, for nonprime Americans, unexpected expenses can quickly cause “a downward spiral on their daily finances as well as their credit history” because they don’t have access to the credit to absorb “financial shocks”.
For the ‘New Middle Class’, research conducted by Elevate found that a bill becomes a crisis for nonprime Americans at $1,400, whereas for prime borrowers, crisis doesn’t hit until $2,900.
Higher credit limits to this “New Middle Class” might just be the lifeline they need to avoid worsening their credit score. Consider the fact that, in 2015, the median credit limit overall was $1,000, while, for those with a credit score of 780 or higher, the median new card credit limit was $8,000.
With the potential credit card, Ken Reese, the CEO of Elevate, told Business Insider his company wants to “serve millennials and others who are struggling to attain sufficient credit to meet their needs. In particular, we expect our card product to have significantly higher lines than other “subprime” cards that may only provide a few hundred dollars to customers and isn’t sufficient credit to deal with real-world financial challenges.”
Cadence is a fintech reporter and writer at Fintech Unltd, where she covers the changing landscape of financial technologies. Previously, Cadence interned at Psychology Today, Business Insider and the Wisconsin State Journal. Cadence is interested in how science and technology intersect with power and culture and is curious about the world we are creating for tomorrow, consciously or not. She graduated from the University of Wisconsin–Madison in 2017 with degrees in Journalism and Chinese. Send tips and story ideas to Cadence at [email protected] You can also follow her on Twitter @cadencebambenek.