The Petal card, which recently announced a new rewards program, caters to quality borrowers who find it difficult to get approved for traditional credit cards because they lack a credit history. Here’s how it works, and why it should no longer be considered a starter card.
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Expanding access to credit for people who don’t have a credit history is a big topic these days.
This particularly applies to young adults who are new to credit, as well as older folks who are rebuilding their credit after prior mistakes. UltraFICO and Experian Boost are two prominent examples of new services addressing this challenge. As FICO details:
“Many consumers are still locked out of mainstream credit, including 79 million Americans who have lower scores (680 or below) and 53 million Americans without enough data on the credit bureau record for a reliable FICO score to be generated.”
Expanding access to credit is generally a good thing, although I worry about some potential unintended consequences with UltraFICO and Experian Boost. Namely, someone who ekes out an approval in today’s robust economic climate might not be able to repay that loan when a downturn inevitably occurs. And both services require consumers to give access to their bank accounts, which can be uncomfortable.
There’s another company called Petal that’s addressing this issue and doing some innovative things. I recently spoke with Petal CEO and co-founder Jason Gross, and he walked me through the model.
I’m a fan. Petal caters to quality borrowers (like one of my brothers) who find it difficult to get approved for traditional credit cards because they lack a credit history.
How it works
Rather than just looking at a credit score, Petal does cash flow underwriting. They take a detailed look at applicants’ incomes and expenses. This is important because many of their customers are new to credit and may not even have a credit score.
But a lot of these people have good jobs and good financial habits. They’re paying their rent and cellphone bills on time and saving money for a rainy day. These are creditworthy borrowers; Petal just needs to look a little harder to find them.
The concept is catching on. Petal has raised more than $80 million to date. The Petal card soft-launched last fall and the waiting list exceeded 100,000 people at one point; it recently became more widely available.
Unlike secured cards and student cards, which are typical starting points for many young adults, Petal offers potentially hefty credit lines. My brother’s secured card came with a limit of just $200, which made it very impractical. Petal’s credit lines go from $500 all the way up to $10,000.
Simple and transparent
The Petal card is a Visa, so it’s accepted almost everywhere. It boasts “no fees whatsoever.” That puts it on a short list of the most fee-friendly credit cards, along with Apple Card, the PenFed Promise Visa and the Citi Simplicity card.
Apple Card echoes Petal in another key area – financial management. The Petal app offers helpful budgeting tools and represents interest in clear dollar terms. Petal charges competitive interest rates (15.24 to 26.24 percent APR), but like any credit card, I strongly recommend paying in full to avoid interest.
Petal’s new rewards program
The main drawback to the Petal Visa had been that it didn’t offer rewards. That changed on May 14 when the company announced 1 percent cash back on all purchases. That goes up to 1.25 percent after cardholders make six on-time payments and 1.5 percent after 12 on-time payments.
This proves Petal isn’t just a starter card anymore. Those cash back rates are excellent compared with student and secured cards, and standard (not exceptional) for more established cardholders. This enhancement means customers don’t necessarily need to rush to upgrade to a different rewards card after using the Petal card to establish a solid credit rating.
I still regularly use a no-annual-fee 1.5 percent cash back card I opened 16 years ago (the Capital One Quicksilver Cash Rewards Credit Card). I’ve added some other cards to my wallet since then in an effort to maximize specific categories such as groceries and travel, and there are a few cards that pay 2 percent on everything, but old habits die hard. And 1.5 percent on everything is still pretty good.
My main takeaway from Petal’s new rewards program is that the company is smart to take its customer value proposition to the next level. Petal is already doing a good job of getting quality young adults in the door. Now it’s giving them a solid reason to stick around.