Across the country, Americans earning six-figure salaries, carrying no debt and sitting on healthy savings accounts are increasingly hitting an unexpected wall when applying for everyday credit cards or loans: instant denial from automated bank algorithms.
The rejections highlight a growing rift between kitchen-table financial discipline and corporate underwriting models. While nationwide credit card balances have climbed to a record $1.29 trillion — a 67% surge since early 2021, according to the Federal Reserve Bank of New York — data from the Consumer Financial Protection Bureau (CFPB) shows an estimated 25 million adults have credit files "too thin" or stale to generate a standard score.
Rather than rewarding households that avoid borrowing, modern underwriting algorithms can interpret limited recent credit activity as a sign of uncertain lending risk, potentially making it harder for some debt-free consumers to qualify for credit.
"Is corporate America penalizing people who live debt-free? I would say they're not penalizing them, but they are not prioritizing them because we're not the ones making them money," Jade Warshaw, co-host of "The Ramsey Show" — who paid off $460,000 in debt alongside her husband — told Fox News Digital. "When you think about the credit score in general, the whole purpose, it's a product, and so it's out there for banks to make money. And if we're not going to be their customer, then yes, they're not going to prioritize us."
IRS ANNOUNCES 2027 TAX CHANGES: WHAT TAXPAYERS NEED TO KNOW
"Responsible, debt-free living, while it is something that we as consumers should absolutely strive for, the interesting thing about how credit works is it's very counterintuitive," credit repair specialist and Micah Abigail LLC founder Micah Smith also told Fox News Digital.
Smith recalled walking into a dealership as a young, debt-free adult to buy her first car, only to be told she was denied financing and needed a co-signer because lenders "couldn't see who she was on paper."
"The algorithms are looking for movement," Smith explained. "They want to see what you've actually been doing. So the interesting thing about credit is that income is never a factor into the score itself. And so you might have this incredible income, but you might not have a credit score that supports exactly who you are as a person."
A 2025 consumer study by PYMNTS Intelligence and the Federal Reserve found that credit anxiety and unexpected loan denials are no longer just low-income struggles, but they increasingly strike households earning over $100,000 due to a lack of borrowing diversity and thin credit files.
Such credit challenges can complicate applications for entry-level credit cards with major providers like Chase or Capital One, as well as financing for cars and mortgages.
Warshaw noted that Fair, Isaac and Company, the predecessor of FICO, was founded in 1956 by Bill Fair and Earl Isaac to develop credit risk analytics, not to measure personal wealth, and argued that decades of financial marketing have conditioned Americans to confuse the two.
"As American consumers, we've allowed the credit score to confuse being profitable for banks with us being actually financially good with money, and it's not the same thing," Warshaw said. "Being profitable with banks by having a good credit score does not equal being a financially responsible adult and actually having wealth and being good with money."
Smith also cautioned against "buy now, pay later" platforms as some of them have started reporting to credit bureaus. So, instead of helping with retail purchases, she warns, opening multiple short-term installment loans creates a flurry of new accounts that continuously drags down the "average age of credit" and makes a file look erratic.
"Every time you open something, it’s going to take your overall length of history backwards," Smith said. "It’s opened up as an installment loan — you open it, pay it off and it closes. So having those opened up often could suppress your scores pretty substantially."
The philosophy popularized by Dave Ramsey is that the credit score is simply an "I love debt" score that measures your relationship with lenders as opposed to true financial success. Warshaw advises consumers to cut up their cards and practice total abstinence, warning that credit cards can act as a "gateway drug" that leaves families vulnerable to financial disaster.
"If you look at all the research and data out there, you will find the research that says if you hold credit cards, you are also more likely to hold other forms of consumer debt — so personal loans, car loans, mortgage debt, all of those things. So credit cards, in that way, it kind of is a gateway drug into the other forms of debt," Warshaw said.
"It's so easy to get behind," she continued. "And I remind people all the time, I say, 'I get it.’ Most people out there who talk to me about credit cards, they say, 'Jade, don't worry, I pay it off every single month.' And I say, 'Really, you pay it off every single month? America has $1.3 trillion in debt. That means someone's lying.'"
Smith agreed that living debt-free is an admirable goal, but argued that voluntarily becoming "invisible" in a digital economy creates expensive, everyday roadblocks when dealing with landlords and co-ops, or operating a small business. She argued, "You will not be able to run a business on cash alone. It doesn't exist."
The credit repair expert recounted a recent trip to Las Vegas where more than $9,000 in travel expenses were funded entirely through accumulated credit card points and cash back rewards.
"I think the Ramsey solution is great for people who don't have the ability to say ‘no.’ If you live responsibly, you need to have credit," Smith said. "You need to have it established because it's going to open doors that cash just won't, and that's just a fact."
The experts offer differing advice for fiscally responsible consumers: keep revolving cards open with low balances to pay off every month, or treat debt as surrendering control and build a 3-to-6-month cash emergency fund.
GET FOX BUSINESS ON THE GO BY CLICKING HERE
"The biggest thing that people don't realize is that [with] credit cards, you can have an 800 credit score with just having credit cards, and you want to maintain them. And so open them, use a small amount, pay them off," Smith said. "In the world of FICO, they actually reward tiny little balances, so leave a balance of $1 to $5. That's all you need to ensure it calculates into the credit score."
"Around here, we believe that the borrower is slave to the lender — meaning if you owe money to anyone for any reason, that person has power over you," Warshaw argued. "Credit cards aren't there to build wealth. Credit cards are there as a product to help you overspend and make banks money. But if you really want to be wealthy, son or daughter, what you're going to do is you're going to avoid debt. You're going to take your margin, and you're going to invest it for the future."
READ MORE FROM FOX BUSINESS
Continue reading...
[ H/T Fox Business ]
