New mobile application designed to reinvent personal credit

The new Affirm mobile application offers consumers an alternative to traditional credit cards when they purchase goods from online merchants. Point-of-sale financing, for which consumers are urged to exercise caution, can be completed with just a few clicks. 

Americans hit a new milestone in June when, according to the Federal Reserve, they were carrying collectively $1.021 trillion in outstanding revolving credit, or credit card debt. 

That beats the previous record of $1.02 trillion, which was recorded in April 2008. That was the amount recorded by the Fed when it guaranteed Bear Stearns' bad loans to secure JP Morgan's agreement to purchase the failing investment bank to prevent its bankruptcy — and tried to prevent a collapse of global economic markets.

A recent study conducted by Affirm, a company intent on reinventing personal credit, found that 67 percent of 1,600 U.S. adults surveyed expressed personal fears about debt. Almost a third — 32 percent — are fearful because they don't know how long it would take to pay off that debt, and 72 percent of those who have carried a credit card balance worried about how much their purchases would end up costing after interest was included.

Findings like those and other factors prompted PayPal co-founder and serial entrepreneur Max Levchin to develop and roll out a new mobile application designed to reinvent personal credit. The Affirm app — rolled out this week and available for download from the App Store and Google Play — allows customers to split big online purchases into smaller, fixed payments with a virtual card. 

“Credit today is broken — primarily because the incentives for banks that issue it are built on business models that profit from consumers’ failure — our mission is to fix this inherently broken model,” Levchin said in a media release. “The future of credit is not a traditional card, it’s a modern app that puts consumers in control, helping them use credit simply and deliberately while giving them more confidence over their financial lives.”

Affirm's financial services business is based upon three principles: There are no hidden fees, no compounding or deferred interest, and credit is extended only to those who can afford to repay on time and in full. The app, which was tested for more than a year before its rollout, gives consumers a choice to split a single purchase into smaller payments with up to 12 months to pay. 

Analysts at NerdWallet, a company that provides consumers with online tools and information designed to help them make smart financial decisions, reviewed the Affirm app. Based upon an analysis of more than 30 data points collected from the lender, the application process, and comparisons with other lenders, NerdWallet found Affirm might be a good fit for some consumers, but may be a bad idea for others. 

Amrita Jayakumar, a personal finance writer at NerdWallet, said the Affirm mobile app "may be a good option if you must buy something immediately but don't have money saved or a credit card." It may also be a good option for consumers who can pay off the loan within a year — the sooner, the better — and for those who want to lower the ratio of debt to available credit on another card, which can improve credit scores.

Jayakumar said those who can afford to wait and make a purchase after they have saved money will fare better without point-of-sale financing options like Affirm. The same is true, she said, for those who use credit cards for which balances are paid in full each month or those who are able to pay only the minimum due each month.

Affirm reportedly conducts only a "soft inquiry" of a consumer's credit report, loans are identified in the installment section of a credit report, and payments are reported to Experian. NerdWallet reported interest rates that ranged from 10 percent to 30 percent, depending upon a borrower's creditworthiness and credit history. 

“Our unique transparency gives financial control to consumers – something especially important to Millennials, but highly valuable to everyone,” Levchin said. “Fair and honest credit is what consumers want and expect today. It’s high time to deliver.”    

Reach D.E. Smoot at (918) 684-2901, @dsmootMPhx or

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