Raise your hand if you thought that getting credit as an adult would be easy! With so much bad debt in the U.S., you’d think that just anyone could get their hands on a credit card or a loan. Which is why you might be surprised, shocked even, when traditional banks and creditors turn you down for nitpicky things.
It’s tough not to take it personally. After all, you might have a steady job and every intent to repay what you borrow. But some banks don’t want to hear all that. And when that’s the case, you’ll need to explore alternative forms of credit.
Here are some of the top alternative forms of credit that not only help you get the buying power you need, but can also help you build your credit score along the way.
Chime promotes itself as a new way to build credit, and does so in a way that’s inexpensive and hassle-free. It’s a secured credit card, which works like a regular credit card except you front the money instead of spending it first. Think of it like a prepaid gift card: you deposit the money and can only spend what’s loaded onto the card.
There are a lot of big perks here:
For starters, you don’t risk getting carried away with your spending since you can only spend what you prepaid. You can use the card just like any regular credit card, including online shopping. And with every purchase, you’re building your credit score and credit history.
To get a Chime secured credit card, you don’t have to go through a credit check and you don’t have to pay any annual fees or interest. It’s like having a credit card that you never get a bill for, so your purchases don’t incur monthly minimum payments or high interest rates like other cards.
Chime credit builder will report to the three main credit bureaus (TransUnion, Equifax, and Experian) so you can build up your score. You’ll get major bonus points in terms of on-time payment history and length of credit history, both of which can help you increase your score quickly.
Credit Strong is a program that helps you build credit without a credit card. If you have credit cards and are paying on time every month and not seeing your credit score budget, then this program might be for you. It’s designed to build your credit via low monthly payments and grow your savings at the same time.
Here’s a quick peek at their process:
When you apply for Credit Strong, you get an instant bank loan whose funds are added into a savings account. These funds are locked – you can’t spend them.
Then, you make low monthly payments. Since this program is through a bank, the bank will report your payments to the three main credit bureaus. These payments help to build your credit history every month. You can check your FICO score every month so you can track your progress. (By the way, the FICO score is what 90% of lenders look at when issuing loans).
Once you pay off the loan, the funds in your savings account are unlocked and available for you to use. You’ve just forced yourself to save money AND you’ve bumped up your credit score. Win/win!
Many Credit Strong users see their scores jump tens of points after just a month or two. This program does cost a little to join (see pricing plans here), since you’re paying interest on the loan, but the benefits often outweigh the minimal costs.
In our digital era, credit cards are no longer the little pieces of plastic you slip into your wallet. Grain is living proof of this: it’s a digital credit card that lives on your smartphone. Your credit card is linked to your checking account, and credit limits are based on your cash flow. Just link the app to your bank account and get instant access to credit.
On the app, you can see your credit reporting insights with every billing cycle. You can also schedule automatic payments to avoid late fees and high interest rates.
Self’s Secured Credit Card
One of the biggest up-and-coming alternative forms of credit is Austin-based startup Self, a secured Visa credit card that helps you build credit history.
This secured credit card is breaking the typical boundaries of other secured credit cards because it doesn’t require a credit check or an upfront cash deposit. Instead, it’s more like a combination of Chime and Credit Strong.
To start, you will open a Credit Builder Account, which is a secured installment loan that deposits funds into a savings account and locks access to those funds. You'll make payments toward the loan each month, which will be reported to the major credit bureaus and thereby increase your score. Once the loan is paid off, you can apply for a Self Visa credit card and use your accumulated funds for your security deposit.
This is a unique model because it focuses on a mix of accounts, something that creditors look at when determining credit worthiness. You’ll have an installment loan and a credit card to your name, which can help you get approved for higher credit limits.
Final Thoughts on Alternative Forms of Credit
Getting turned down for credit can be disheartening, but there’s always a bright side. One of these alternative forms of credit can not only give you the short-term boost you need, but also prove to creditors what you can do.
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