The Lemon Card
The problem we’re solving at Lemon is not financial literacy. The problem is being turned down for a job, car loan, house loan, apartment lease, or cell phone because of a low credit score. Or the problem is getting a 6% mortgage rate instead of 5% — all the sudden you’ve got a house payment that’s an extra $100 a month and $100 less to spend on food. It’s a domino effect that can wreak havoc for years. And it can sometimes be impossible to recover from that original fork in the road.
The vision of Lemon has always been to teach in order to affect long term financial outcomes. We tried our “DuoLingo for personal finance” education app in the summer of 2015 and we’ve tried our “smarter, unbiased mint.com” app over the last few months. Both valiant efforts, but neither are going to move the needle on long term financial outcomes at scale. They’re optional products that augment required ones. We were the sprinkles on the cake instead of the cake itself. And that’s totally fine if you just want to sell sprinkles (i.e. sell ads), but we want to change how the cake is made.
Our research and feedback have helped us understand that some our users are baffled at the mechanics of credit.
- What are the long term implications of credit?
- How are credit scores are determined?
- What is a credit utilization ratio?
- What’s the difference between reporting and due dates?
- What is an APR? How does it affect an outstanding balance?
- When is a payment considered late?
With that in mind, we’re designing a credit card that’s meant to build and maintain healthy credit. We’re keeping the feed and educational aspects of Lemon, but they’re now a companion to a financial product that we control (along with our partner bank). Think of it like a fitness tracker, but for your credit score. The card and app are designed to track your progress, track your rewards, and show a real-time dashboard with all of your vitals: balance, due date, usage, APRs, recent transactions, and access to your full, detailed credit report.
We did consider a credit fixing approach, but that doesn’t get to the root of it. We want to be the nutritionist — not the surgeon performing a triple bypass.
Changing any habit or behavior for sustained periods of time is really hard. Flossing, exercising, dieting, budgeting… we make a change for a couple of weeks and then often fall back to our old ways. These important-but-non-urgent things just aren’t as pressing as checking Instagram, getting to level 2,000 on Candy Crush, or #kuwtk. We don’t expect to compete on screen time with the aforementioned forces, but we will interject occasionally.
Credit utilization is ~1/3 of your credit score. You want to be at or below 30% usage on each card and in aggregate. For example, if you have a balance of $4,000 on a card with a $5,000 limit, you’re at 80% usage and your score is likely being affected.
The Lemon Card allows you to lock your usage. If you want to stay below a 25% balance:limit ratio, we’ll assist by allowing you to accept or block a charge that’ll put you over.
Keeping this information in front of users is more than half the battle. It occurred to me that not everyone will use the companion app and not everyone has an iWatch. In December of 2015, I threw out a few ideas for a new type of credit card. I was thinking we should show the balance, due date, and usage on the actual card. So… we are.
Payment history (whether or not you pay on time) is another 1/3 of your credit score. Between credit utilization and payment history, that’s almost 70% of your score (the rest is mixture of age of accounts, number of accounts, hard inquires, and public records). Because these two factors are so important, we want to display them on the card when appropriate.
As we continue to prototype cards and test new features, we’ll continue to share updates. You can add your name to the waitlist for the card at lemon.co.