Banking algorithms reject debt-free six-figure earners as US debt hits $1.29 trillion

Across the country, Americans earning six-figure salaries, being debt-free and with healthy savings accounts are increasingly hitting an unexpected wall when applying for credit cards or loans on a daily basis: instant rejection from automated banking algorithms.

These refusals highlight a growing gap between kitchen financial discipline and corporate underwriting models. As credit card balances nationwide hit a record $1.29 trillion — a 67% increase since the start of 2021, according to the Federal Reserve Bank of New York — data from the Consumer Financial Protection Bureau (CFPB) shows that about 25 million adults have credit reports that are “too thin” or stale to generate a standard score.

Rather than rewarding households for avoiding borrowing, modern underwriting algorithms may interpret recent, limited credit activity as a sign of uncertain lending risk, which could make it harder for some debt-free consumers to access credit.

“Are corporate America penalizing people for living debt-free? I would say they’re not penalizing them, but they’re not prioritizing them because we’re not the ones making them money,” “The Ramsey Show” co-host Jade Warshaw — who paid off $460,000 in debt alongside her husband — told Fox News Digital. “When you think about credit scoring in general, the main objective, it’s a product, and so it’s there for the banks to make money. And if we don’t want to be their customers, then yeah, they’re not going to prioritize us.”

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“Living responsible and debt-free, while it’s something that we as consumers should definitely strive for, the interesting thing about how credit works is that it’s very counterintuitive,” Micah Smith, credit repair specialist and founder of Micah Abigail LLC, also told Fox News Digital.

As U.S. credit card balances reach a new high, an estimated 25 million Americans have credit reports deemed “too thin.” (Getty Images)

Smith remembers walking into a dealership as a debt-free young adult to buy her first car, only to be told she was denied financing and needed a cosigner because lenders “couldn’t see who she was on paper.”

“Algorithms look for movement,” Smith explained. “They want to see what you’ve actually done. The interesting thing about credit is that income is never a factor in the score itself. So you may have an incredible income, but you may not have a credit score that reflects 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 rejections are no longer just low-income problems, but are increasingly hitting households earning more than $100,000 due to a lack of borrowing diversity and thin credit files.

Such credit issues can make it difficult to apply for entry-level credit cards from big providers like Chase or Capital One, as well as financing cars and mortgages.

Warshaw noted that Fair, Isaac and Company, FICO’s predecessor, 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 let credit score confuse being profitable for banks with us actually being good financially with money, and that’s not the same thing,” Warshaw said. “Being profitable with banks because of a good credit score does not equate to being a financially responsible adult, possessing wealth and being good with money.”

Smith also warned against “buy now, pay later” platforms as some of them have started reporting to credit bureaus. So, instead of facilitating retail purchases, she warns, opening several short-term loans creates a wave of new accounts that continually lowers the “average credit age” and makes a file look irregular.

“…if you owe someone money for any reason, that person has power over you.”

-Jade Warshaw

“Every time you open something up, it sets your story back,” Smith said. “It’s opened as an installment loan – you open it, pay it off and it closes. So opening them often could lower your scores significantly.”

The philosophy popularized by Dave Ramsey is that credit score is simply a “I like 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’ll find research that says if you hold credit cards, you’re also more likely to hold other forms of consumer debt – so personal loans, auto loans, mortgage debt, all those things. Credit cards, in that way, are sort of a gateway to other forms of debt,” Warshaw said.

“It’s so easy to fall behind,” she continued. “And I remind people all the time, I say, ‘I understand.’ Most people who talk to me about credit cards say, “Jade, don’t worry, I pay it off every month.” And I say, “Really, you pay it off every month?” America is $1.3 trillion in debt. It means someone is lying.'”

Smith agreed that living debt-free is an admirable goal, but argued that becoming willfully “invisible” in a digital economy creates costly, everyday obstacles when dealing with landlords and co-ops, or operating a small business. She argued: “You won’t 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 fully funded through accrued credit card points and cash back rewards.

“I think the Ramsey solution is ideal for people who don’t have the ability to say ‘no.’ If you live responsibly, you have to have credit,” Smith said. “You have to have it in place, because it will open doors that cash just won’t, and that’s just a fact.”

Experts offer different tips for financially responsible consumers: keep open revolving cards with low balances to pay off each month, or treat debt as a relinquishment of control and build a 3- to 6-month emergency cash fund.

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“The biggest thing that people don’t realize is that with credit cards, you can have an 800 credit score just by having credit cards, and you want to keep them. So open them, use a small amount, pay them off,” Smith said. “In the world of FICO, they actually reward very small balances, so leave a balance of $1 to $5. That’s all you need to make sure it counts toward the credit score.”

“Here we think of the borrower as the slave of the lender, meaning if you owe someone money for any reason, that person has power over you,” Warshaw explained. “Credit cards are not there to build wealth. Credit cards are there as a product to help you overspend and make money in the bank. But if you really want to be rich, son or daughter, what you’re going to do is avoid going into debt. You’re going to take your margin and you’re going to invest it for the future.”

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