Problem: Earning a credit score is more important than ever before. A good credit score is essential for major life milestones such as buying a house or starting a company. However, young adults, especially those in their last years of high school or college freshmen, face increasing difficulty in building a credit score. Traditional avenues like credit cards and loans often come with strict eligibility criteria, leaving young individuals with limited options to establish a positive credit history.
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Solution: Imagine a financial tool that bridges the gap between responsible spending and credit-building, all while promoting financial literacy. Introducing a debit card system that addresses the credit score challenge faced by young adults. This innovative approach transforms everyday spending into credit-building opportunities. Here’s how it works:
Initial Deposit: Users start by depositing a specific amount of money into an account linked to the debit card. This initial deposit serves as a security net and enables the user to make purchases.
Every Purchase Counts: When a user makes a purchase using a debit card, the card essentially lends the user the money to complete the transaction. This creates a temporary ‘debt’, which is then immediately paid off from the user’s initial deposit.
Credit Score Building: These ‘borrowing’, and ‘repaying’ cycles are reported to credit bureaus, helping users build a positive credit history over time. Responsible spending behaviour is rewarded, mimicking the way traditional credit cards impact credit scores.
There are compelling advantages from using the debit card:
Accessible to Young Adults: The beauty of this system lies in its accessibility. Young adults even those in high school or college, can begin building their credit score without the hurdles associated with obtaining a traditional credit card or loan.
Hands-On Financial Education: Through this system, users are forced to make informed spending decisions. They learn how to budget their expenses and how to manage their deposit funds. This leads to the users fostering a sense of financial responsibility and builds their literacy.
Mitigating Financial Missteps: By limiting spending to the initial deposit, users are shielded from taking on too much debt which would become unmanageable. This preventive measure can stop young individuals from facing potential financial disasters caused by overspending.
Early start to a Strong Credit History: The earlier individuals begin building their credit, the more time they have to cultivate a solid credit history. This can significantly enhance their prospects when they’re ready to take on larger financial responsibilities.
Right now, the market for these credit building debit cards is in the initial stages. The 3 biggest companies in this space are Extra debit card, Sequin debit card and Sesame Cash debit card. Since the market is still new now would be a great time to launch a credit building debit card aimed at these young adults which includes <18 high school students since there are no cards in the market catering to this segment.
Monetisation: Monthly subscription + Discounted yearly subscription
Contributed by: Parthiv Chowdary Anne (Billion Dollar Start-up Ideas Intern)