Aimed for applicants with thin credit files, the Petal card now offers cash back and higher credit limits – but depending on your ability to handle credit, those perks could help or backfire.
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Dear Cashing In,
My son heard of something called a Petal card. He’s in college and wants to start building credit. Is it worth it? – Chris
Companies are devising all sorts of innovative cards these days, and we will probably see more in the months ahead.
See related: Busted: 5 myths about alternative credit data
Petal card: What it offers
Let’s take a look at some of the features:
- No fees. Petal has no annual fees, no late fees, no foreign transaction fees.
- Aimed at building credit. The company says the card is a “great choice for people who are new-to-credit because Petal doesn’t require a credit history to apply.” People with low credit scores or no credit might have a shot.
- Higher credit limits. The company says it uses machine learning, not just your credit score, in determining your eligibility and your credit limit.
- Rewards. Effective in May 2019, Petal users receive 1 percent cash back. That rises to 1.25 percent after six months of on-time payments and to 1.5 percent after 12 months of on-time payments.
The main appeal of this card is that it seems as if it is available to people with poor credit or little or no credit. And its no-fees policy is favorable.
Is the Petal card worth it?
The Petal card’s rewards seem adequate – especially for people who might not otherwise be able to qualify for a rewards card. Often, the best rewards cards are available only to those with very good and excellent credit.
For people just starting out, rewards should usually not be a consideration. It’s better to learn to manage credit, pay on time, and keep out of debt than it is to worry about maximizing credit card rewards.
In this way, Petal’s fee structure could be a helpful incentive, since the reward rate encourages on-time payments. If you make 12 payments on time, you earn the full 1.5 percent cash back.
Considering a starter card
Keep in mind that even if your son is making minimum payments on time, the rewards he earns won’t put much of a dent in the interest payments he is making if he does not pay the balance off in full.
Another worry might be those higher credit limits. If somebody is just starting off with credit, having access to too much might pose problems.
If you think your son is responsible and can pay his credit card bill on time and in full, Petal could be a worthwhile way to build credit while earning some modest rewards.
If you are unsure if he’s ready to start managing his bills, you might look for other cards with lower credit limits where he cannot run up big balances and get in over his head.
The tried-and-true approach is to build credit gradually, then move up to cards with higher limits and better rewards.
For a first credit card, you might not want to give your son more than he can handle. Credit cards with good rewards and high credit limits will eventually be available to him – if he manages his credit well to begin with.