Gen Z Wants Credit, Not Debt: How Banks Can Offer Peace of Mind that Start-ups Can’t

Megan Gross
Art Director

Let’s say you’re just starting out — first job, first apartment, first time out of the parental cocoon. You approach a traditional bank about a credit card to start your credit journey and their answer is …“Denied.”

According to a study by Alliance Data Systems Corporation, 27% of Gen Zers report being turned down when applying for their first credit card — a rate twice as high as any other generational group. It’s nothing new. Every generation has faced its own roadblocks to establishing and building credit. What’s different today is that Gen Z has a secret weapon on its side: the fintech sector.

Extra and more

Companies such as the start-up Extra — unconstrained by interchange fee limits imposed on big banks by the Durbin Amendment — offer a credit-building workaround for young people denied credit cards. Extra offers debit cards linked to traditional bank accounts that not only contribute to a customer’s credit score but provide reward points as well.

The approach suits a common Gen Z sentiment: They want to build credit, not debt, putting them in a position not just for a traditional credit card but for larger purchases down the road like a car or a home. And they’d like to get something, well, extra, in the process.

It also solves a bind many young people find themselves in — their rent payments don’t appear on their credit score, nor do the payments they make through their daily debit purchases. If they don’t — or can’t — take on traditional credit, their responsible, regular spending doesn’t move the needle on their credit score.

The opportunity to turn regular spending into creditworthiness is appealing. So, it’s no surprise that it’s not just Extra moving into the space — innovators such as Grain, Chime Credit Builder and Empower offer differing ways for young customers to build credit while potentially earning perks on the things they buy.

There’s a silver lining for banks

The Alliance Data study points to the fact that one in three (36%) Gen Z shoppers would prefer a traditional credit card over debit cards for common purchases of $150 or less. In addition, they want more centralization, with nearly eight in 10 saying they want to manage all of their accounts in one place, and digitally pay from whichever account they choose.

Maybe most importantly, the study found that Gen Z is more security conscious than any other generation. Young consumers expressed overwhelming preference for protection against fraudulent websites, the ability to lock their accounts and other security features.

These preferences would seem to give traditional banks an advantage — size, strength, security and stability — as well as the ability to provide Gen Z with all-in-one financial solutions, from digital payments to multiple account choices to credit to lending.

Making credit a benefit

Nearly two-fifths of Gen Zers say they learn about personal finance from content on TikTok, YouTube and other social media apps. This highlights a gap in education that traditional banks could be filling with smart communication. This isn’t to say you should start posting your CEO doing dances on the internet to be in the consideration set. While companies such as Fidelity have found success in connecting with Gen Z on TikTok, clever social media campaigns aren’t the end-all and be-all. Gen Zers want the streamlined, secure experiences that banks can provide to help them be debt-free and boost their credit.



For marketers, this represents an opportunity to reach out to young consumers through their preferred communication channels and start the kinds of honest, engaging conversations that build long-term brand consideration. This is also an opportunity for product marketers to consider new products that could help Gen Z establish credit and educate them on how to build a path to credit card approval with their current spending activity.

The credit solutions currently offered by fintech might scratch an itch but may not offer a long-term, big-picture solve to Gen Z’s financial goals. The generation’s more nuanced, cautious and informed approach to credit —and their overarching financial lives — signals an opportunity for banks to step in as the clear choice for young people seeking to establish a financial foothold today and build toward the future.

Browse articles

Megan Gross
Art Director