In recent years, it has become easier for individuals to build credit with a credit card thanks to the rise of financial technology companies offering alternative options. These new cards take a different approach compared to traditional credit cards, utilizing algorithms and proprietary methods that place less emphasis on credit scores and instead consider factors such as income and bank account balances. Additionally, these alternative cards often come with lower costs, boasting features such as no security deposit, no annual fees, and no APR (annual percentage rate).
Financial technology companies, or fintechs, have been at the forefront of expanding access to credit products for individuals who may not qualify for them at major financial institutions. By focusing on underserved markets, these fintechs aim to provide opportunities for individuals to establish credit.
However, while these new credit cards offer a chance to build credit, it’s important to note that the journey may not always be smooth sailing. As fintech companies continue to scale and evolve, changes to account terms and features are to be expected.
All credit card companies, whether traditional or nontraditional, are permitted to make changes to account terms. However, they must adhere to certain guidelines. For example, they are required to provide a 45-day notice of any increase in the annual percentage rate or significant changes in terms. In comparison to established credit cards, alternative cards from fintechs are more likely to experience frequent changes to their terms and features. While some updates may be welcomed additions, others may be disappointing subtractions.
Several examples illustrate how fintech companies have made changes to their credit card offerings in recent years. CreditStacks, which initially launched its namesake credit card in 2018, rebranded itself as Jasper in 2020. Along with the rebrand came redesigned cards and an expanded pool of applicants who could potentially qualify. However, the credit card was later discontinued, highlighting the volatility of the industry.
Another fintech company, Grow Credit, introduced its credit card in select states in 2019 before expanding nationwide in 2020. The card allows individuals to build credit by using it to pay specific bills, though with a low monthly spending limit. Over time, the company added additional membership levels that unlocked more qualifying bills and higher spending limits, providing more credit-building options for those without a credit history.
TomoCredit, based in San Francisco, also made significant changes to its credit card’s original terms. Initially launched in 2021 with no annual fee, the card later introduced a $2.99 monthly fee, and a waitlist was implemented.
Similarly, the fintech company Petal, known for offering low- and no-fee cards to help customers build credit, informed select existing cardholders in May and June that they would be subject to a new monthly membership fee. This change left some cardholders questioning whether the fee was worth it, especially if they had other credit cards available.
It is crucial for individuals to keep a close eye on their inbox for any communication from the credit card issuer regarding changes to terms and fees. Closing an account can negatively impact credit scores, as it can affect credit utilization and the length of credit history.
Managing expectations is key when dealing with fintech companies. It is essential to conduct thorough research before applying for a credit card and understand that the experience may differ from that of a traditional bank. One potential downside is the lack of human customer service, as fintechs often rely on automated or electronic channels instead of brick-and-mortar branches. While this can be cost-effective for the company, it may pose challenges when customers require personalized assistance.
Despite potential drawbacks, getting an alternative credit card from a fintech company can still be worth it, especially if other options are too expensive or traditional credit cards have been denied. As individuals work towards improving their credit, having a credit card from an established issuer as a backup can provide peace of mind in case the terms on the alternative card change.
In conclusion, fintech companies have revolutionized the credit card industry by offering alternative options to individuals who may not qualify for traditional credit cards. These cards evaluate applications differently, considering factors beyond credit scores. However, it is important to be aware that the terms and features of alternative credit cards may change frequently as these companies continue to grow. It is crucial to closely monitor account communications and manage expectations when dealing with fintechs. Taking the time to research and understand the potential benefits and drawbacks can help individuals make informed decisions about their credit-building journey.