Many people can’t live without a credit card. It brings a great deal of convenience whenever they dine out or shop. Not having any plastic cards, on the other hand, can result in great inconvenience because creditors will deem you lacking and judge that you are a credit risk. This causes problems because maintaining credit is a good way of getting an excellent rating.
Some startups are now catering to people with bad credit histories. They are offering a card to those with weak or non-existing records. These are people who don’t have a chance of getting one from traditional financial institutions.
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Before you sign up with startups, though, you should first consider why they are offering the cards in the first place. You should be careful before you sign up for one by making sure you read the fine print and understand all the terms. Some startups include terms that are not favorable to consumers.
Alternative to Establishing Credit
In the past, the only way to establish a record was to apply for a personal loan through a bank or another traditional creditor. Once you paid off the loan on time, the bank would report this information to major credit bureaus, and they will file the record, adding it to your history.
Your credit record is an accurate list of your transactions with different creditors. FICO and other companies use this record to come up with your score, which is a number that shows your ability to pay back nation 21 loans.
If you don’t have a record, you will have a difficult time accessing various traditional financial products, such as credit and debit cards and loans. Without a credit record, creditors can’t determine how much of a risk you are. As a result, they will not approve your loan application, preventing you from an opportunity to establish your history.
There are other options to build up your credit history, fortunately, including cosigning for an unsecured card and getting a secured line.
There are also startups offering charge cards to people who can’t get them from traditional financial institutions. They don’t look at the credit score, but instead, use their own methods to qualify consumers. They also don’t check the previous transactions of their customers.
Startups often look at their customers’ bank accounts to ensure that they have the means to pay for their transactions. You might not qualify for one from a FinTech company if you don’t maintain a bank account. However, some companies don’t require a bank account, as long as you can present cell phone payments, utility bills, and other transactions that show you pay your bills on time.
Choosing the Right Startup
Credit cards from traditional creditors vary from one lender to another. This is the same as with the FinTech startups. Their terms and conditions do vary from one product to another, though. You should read the terms first and compare them to find the right one to suit your needs.
Most of the startups share similar characteristics. However, you should take the time to study each product before making your decision anyway. You should look at the rewards they offer, although the rewards will not be that good compared to cards from a bank.
Cards from startups also have a lower credit limit than one from a bank. However, it is still higher than secured cards; their limit depends on how much money you have in your account. The Annual Percentage Rate (APR) for startup cards follow the industry standard, but there are companies with interest rates of more than thirty percent.
When to Get a Credit Card from a Startup
If you don’t have an established record or have a bad credit rating, then you should consider getting one from a startup. However, there are many ways to establish your credit. Getting a card from a startup should be your last option.
You should consider getting a personal loan to build up your credit history. These can be obtained from a bank or a private lender. Another alternative is a secured credit card, but only if you have the money to deposit in an account.
However, if you can’t get a loan or a card from a traditional creditor, then you can opt for one from a startup. Just make sure that you choose the right FinTech Company. Do proper research so that you can make the right decision.
Some startups combine the flexibility of charge cards with features of a personal loan in order to make them more attractive than traditional lines of credit. They also allow consumers to apply for one through a website or an app. After approval, they would send out a physical card.
Fixed-rate borrowing is one of the selling points of a card from startups. It makes them more attractive than traditional cards with variable interest rates. At present, interest rates continue to increase. Having a fixed rate, though, will ensure that you pay the same interest today, as well as in the future.
Innovations from Finance Technology Startups
FinTech startups challenge traditional cards by offering innovative products and services. Some companies have security to prevent frauds and identity theft. For instance, some startups pair the card with a smartphone to provide better protection against unauthorized purchases. Transactions will not get through without approval from the mobile app.
You should also consider the reputation of the people behind the startup before you get a card from them. Make sure they are transparent about their fees and other conditions. That way, you get the most value out of the credit card.
