Anyone who has ever applied for a credit card and been rejected knows the main question that comes to mind is: “Why?” The usual answer is the lack of a credit score, though building one is difficult. Complicating matters, the financial system is paradoxical: it focuses on your credit card or loan payments to create a score, but if you can’t get a card or a loan, you can’t build a credit score.
The reason for this paradox is that mainstream credit lenders tend to focus more on your income level or employment status than whether you pay your utility bills on time. This is how credit risk models work globally, and it comes with downsides that affect rich and poor countries alike. In the United States, 63 million people—1 in every 5 Americans—are unbanked or underbanked, which means they either don’t have a bank account or have limited access to financial services, according to the Federal Reserve.
This system disproportionately affects Black and Latino households, as well as many immigrants who can’t transfer their credit score from their home country to a new one, leaving them at a greater disadvantage to finance big goals like education or acquiring property.
Finding a solution to this problem has opened the door for alternative services that seek to bridge the gap between what banks think about your ability to repay them—known as your credit risk profile—and your actual ability to do so, which is usually underrated. But it can be hard to know which alternatives are legitimate and how they work. We’ve gathered three in this guide that we hope will help you get the extra notch you need to be fully banked.
One way to establish or enhance your credit score is to allow banks to consider different types of data of your financial behavior, such as utility and phone bill payments. This is considered “alternative” financial data, and although the US Government Accountability Office says more lenders are using it to determine credit eligibility, there’s no set protocol for how this type of data should weigh into their evaluation.
Against this backdrop, Grow Credit launched in 2019 to provide small revolving credit lines to cover common subscription bills such as Netflix, Amazon, Hulu, HBO Max, and Spotify, to name a few that Grow Credit accepts. The company will give you a Mastercard credit card, without a credit check, and you’ll need to link it to your bank account. You are required to use that card to pay for your subscriptions, and the balance on that card will be deducted from your bank account each month.
This works because credit report agencies like Equifax or Experian, who inform lenders of consumers’ credit scores, don’t consider service bill payments in their scores as they do credit repayments. Because Grow Credit reports the use of its Mastercard as if it were a traditional credit card, it uses your bill payments to show banks what they want to see: your willingness to repay debt.
Older and more comprehensive than Grow Credit is Chime, a financial technology platform that has partnered with specific banks to provide banking services (checking and savings accounts) and a Visa credit card that does not require a credit check or charges any maintenance fees.
The Chime credit card allows you to cover any type of purchases, online and IRL, just as a regular card, but only up to the amount that you deposit within your billing period. If you deposit $100, you can only spend up to that amount. If you deposit a bit more, your credit line increases—but you’re not spending your deposit just yet. When it’s time to pay the credit bill, Chime will take the full repayment out of what you have deposited once a month and the rest rolls over to the next month.
Unlike many big banks that offer similar products—known as “secured” credit cards—you don’t need to make a secured deposit of $2,000 to get a credit line that never touches that money. But Chime does have requirements for issuing a credit card: you’ll need to open a Chime checking account and have deposits of at least $200 a month. The easiest way to fund this account is through direct deposits from an employer, payroll provider, or “gig economy” company like Uber or Doordash, but Chime also takes transfers from other banks, checks and cash transfers from authorized retailers.
Similar to Grow Credit, Chime will report your credit card usage to the main credit report agencies as if you were using a regular revolving credit line, adding points to your credit score over time. The website has a fairly slick web interface (similar in quality to the big banks’ credit and checking accounts functionalities), and Chime also has companion apps for iOS and Android.
Upstart is a personal loan lender designed for people with low credit scores—about 300 points and above—who reside in the US and have either full-time employment or are about to start to work. These minimum requirements can be especially helpful for newly arrived immigrants and for US citizens with damaged credit history.
Upstart is not a bank, though. It’s an artificial intelligence platform that partners with many smaller banks who will be able to generate loans while considering non-financial data that Upstart includes in its credit evaluation that will get you approved for the loan. According to the Consumer Financial Protection Bureau, Upstart’s credit evaluation model allows them to approve more applicants at lower rates than traditional banks.
Taking personal loans can seem scary, especially when people with low or bad credit scores have gone through the experience of predatory lending with products like those peddled by “loan sharks.” To start off, it’s important to recognize your spending limits and make sure you can repay the debt within those limits. But Upstart has shown its practices are not related to predatory lending. Regulators like the CFPB looked into its credit risk model in 2019 and found that it complied with fair lending practices and didn’t violate antidiscrimination laws. Also, it seems to be well-regarded by financial publications like NerdWallet.
Through Upstart, you can apply for loans between $1,000 and $50,000, for debt consolidation or refinancing a car. For this story, I took Upstart’s “check your rate” evaluation, which asks you questions about your income, employment status, education, and some expenses. You can complete the form entirely online in about 10 minutes, but the response about your eligibility will arrive by mail. Unlike Grow Credit and Chime, Upstart does not have a mobile app to track or make loan payments.
The interest rate varies per person, and just because you inquire if you qualify for a loan, you don’t have to take what they offer. If you don’t, Upstart will follow up a maximum of two times and then leave you alone. When it’s time to repay your loans, you can do so by check, over the phone, or make manual or automatic online payments.
None of these services have any record of investigations for consumer protection violations or fraud, which you can check by searching the Federal Trade Commission’s online legal library. If you have used any of these services and believe you’ve been treated unfairly or want to escalate a complaint that the service itself isn’t addressing, you can submit a complaint to the CFPB.