Consumers whose credit histories are too sparse to qualify for an affordable card will soon have another tool available to help them bulk up their reports: An interest-free, low limit virtual credit card designed to them get credit for their on-time online subscription payments.
Consumers whose credit histories are too sparse to qualify for an affordable card will soon have another tool available to help them bulk up their reports: An interest-free, low limit virtual credit card – dubbed the Grow Credit Mastercard – that’s designed to help inexperienced borrowers get credit for their on-time online subscription payments.
Even consumers who have never used credit before should be able to qualify for the new digital “card”: Unlike most credit cards, the Grow Credit Mastercard doesn’t require a credit check. Instead, it asks cardholders to link their bank accounts and agree to automated payments.
In exchange, the Grow Credit Mastercard will be set up to pay for regular subscriptions, such as streaming services or home delivery. Grow Credit will then report consumers’ card payments to the credit bureau Equifax – helping fill out their credit histories.
According to Grow Credit CEO Joe Bayen, the new card is not only designed to help people with thin or damaged credit add more tradelines to their reports; it’s also intended to help them boost their credit scores in the same way a more traditional loan would.
“Small dollar loans can have a large impact on credit scores since positive recurring behavior is an important credit scoring factor,” said Bayen in a news release announcing the new card.
Alternative data still has limited effect on credit scores
Since many consumers with thin or damaged credit have a hard time qualifying for regular cards, the Grow Credit Mastercard gives them a chance to build or rebuild their credit with payments they were already making.
But unlike services that help people bulk up their reports with alternative data, such as cellphone or rent payments, the Grow Credit Mastercard is structured like a revolving credit card account and so is more likely to impact a consumer’s credit score.
Alternative data, by contrast, is only used in some credit scores. For example, VantageScore and the latest FICO score factor in rental payments when the information is available. However, older versions of the FICO score – which many lenders still use – don’t include it. As a result, consumers who don’t have a traditional loan, such as a credit card, mortgage or installment loan, are unable to get credit for their on-time payments.
As Grow Credit notes in its news release, “the services that report on-time payments for rent and utilities have a minimal impact, due to a lack of credit risk factors.”
See related: 5 myths about alternative credit data debunked
Not your average credit card
Unlike a traditional credit card, the Grow Credit Mastercard doesn’t give consumers free reign to charge whatever they want. Instead, the card is designed to be used solely for subscriptions.
Cardholders are also limited to subscription services that partner with Grow Credit. However, the card’s list of partners is already fairly large and includes Netflix, Hulu, Spotify, Apple Music, HBO Now, Xbox Live, PlayStation, JustFab and Dollar Shave Club.
Credit limits on the Grow Credit Mastercard are also unusually tiny. Consumers who choose the free version, for example, will initially be given a maximum of just $20 a month to spend. Meanwhile, a monthly fee-based version that costs $4.99 a month (around $60 a year) gives cardholders a starting credit limit of $50, with the ability to eventually earn a maximum credit limit of $600.
The card is also designed to be used like a debit card, rather than a credit card. As a result, it doesn’t charge an APR.
See related: Zerocard: A debit-like card for credit-shy consumers
Consumers have few alternatives
The Grow Credit Mastercard is unlike any other service. However, it’s not the first lender to offer a card without a credit check. A few lenders, such as Deserve, offer no-fee cards to consumers without a credit history. However, most cards that don’t require previous experience with credit are subprime credit cards with annual fees or secured credit cards.
Some third-party companies, such as RentTrack, Rock the Score, Rent Reporters and Rental Kharma help consumers build credit by reporting their rent payments. However, the payments aren’t guaranteed to help a consumer’s score. The services also typically require a substantial monthly fee.
The credit limit on the Grow Credit Mastercard is so small that the card’s full impact on a consumer’s credit score is uncertain. In addition to looking at a consumer’s payment history, credit scores also consider the amount of available credit borrowers are using.