January 11th, 2012
Suze Orman’s Approved Card: A Prepaid Debit Card That Will Disrupt the Credit Industry… Maybe.
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Suze Orman is known for her straightforward approach to personal finance and flashy TV smile. She’s one of the most recognizable financial gurus in America today. Now she’ll be known for something else: The Approved Card, her new prepaid debit card.
At first glance, the card brings to mind other celebrity-backed prepaid debit cards, such as the cards branded by the Kardashians and Russell Simmons. After those highly criticized cards, it seems odd that a financial expert would brand her own controversial financial product. So what, then, is Orman’s motivation for creating her own prepaid debit card?
A new kind of prepaid debit card?
Orman’s first financial product, which she says she “built from the bottom up,” attempts to change the way credit scores are calculated by sending Approved Card holders’ data to TransUnion credit bureau. It’s the first debit card in history to do so. In two years’ time, TransUnion will evaluate whether or not the debit card predicts future consumer behavior and whether debit card activity would be counted towards a consumer’s credit score.
Consumers may be confused that this debit card will help them build their credit, which isn’t true—at least not yet. A prepaid debit card gives you the convenience of paying with plastic, but you’re using your own cash that you’ve pre-loaded onto the card. Just like a regular debit card, it won’t affect your credit at all.
Orman hopes that the data from her Approved Card will convince credit score creators to consider debit card history in their formulas, but this isn’t guaranteed to happen. She suggests it’s unfair that consumers with credit card debt are rewarded with good credit scores while those who stick to cash and debit cards can’t build credit at all.
A benefit that most media haven’t highlighted is that The Approved Card gives cardholders access to their TransUnion credit score and report. However, the consumers using this card will likely have short credit histories or “thin files,” meaning it may be impossible to generate a score for them at all. Besides, consumers can get their credit scores from Credit Karma for free, along with free credit monitoring, without signing up for a financial product with a monthly fee.
One of the biggest criticisms of The Approved Card is that it costs $3 per month (or $36 per year), plus it comes with a slew of other potential fees, including a fee to talk to a customer service representative and a fee to receive a paper statement. Although the $3-per-month fee is on-par with or less than other prepaid debit cards, it’s still seen as a big con by most critics.
Is it the only option?
Before committing to a monthly fee prepaid debit card, know that there are some alternatives to consider. For those who want to avoid fees but want the convenience of a debit card, there are still lots of free checking accounts out there. My Two Dollars has a great list of fee-free accounts. If you want rewards from using your debit card, PerkStreet Financial gives you just that, with 2 percent cash back on debit card purchases.
For consumers with short credit histories, or no credit at all, a secured credit card will not only guarantee you approval, but it will also help you build your credit. (Read more about how secured credit cards work.)
Bottom Line: It’s still too early to see how The Approved Card might change the credit scoring industry, or if it will at all. As it stands, it doesn’t seem likely, according to the New York Times. Additionally, beyond its inability to help consumers build credit, the card has struck a nerve with bloggers and personal finance pros alike who once trusted Orman’s advice. In the midst of trying to do good for the American consumer, Orman seems to have missed the mark.
At the end of the two-year data collecting period, perhaps we’ll see a complete overhaul of the credit scoring industry, counting debit card transactions in scoring formulas. Or perhaps The Approved Card will go the route of the Kardashian Kard and be but a distant memory this time next year.
have a Karmic Day!
Bethy Hardeman, Social Media Maven