Most people probably haven’t heard of Petal, the new credit card that helps people build credit from scratch

• People with thin credit files have trouble qualifying for credit cards and loans. However, you need credit to build credit.
• While there are options for people who have no credit, such as secured credit cards or credit-builder loans, they tend to be costly and sometimes come with terms that are confusing and predatory.
• A new fintech startup recently launched Petal Card, which aims to help people build credit with a fee-free, high-limit credit card.
• Petal is able to offer access to credit to “credit invisibles” through analysis of other financial data such as income, spending, and savings.
• While Petal Card isn’t the right choice for everyone, it may be one of the best credit-building tools for people with no credit.

The traditional banking industry is filled with frustrating conundrums that leave much of the general population — particularly young adults, immigrants, and low-income folks — underserved.

Investment planners can help you build wealth, but you need to be wealthy in order to hire one. Loans can help you cover costs when you’re short on cash, but people who live paycheck-to-paycheck are likely to qualify only for the most expensive loans, while people who have never missed a bill will get the cheapest ones. Credit cards are the best way to build credit, but you need good credit to get one.

The rise of fintech — made up largely by startups that use proprietary technology to streamline banking services, thereby decreasing costs and increasing access — has brought with it the disruption of almost every sector of the financial industry.

The one sector that seems to have been left out is credit cards, an area still ruled by banking behemoths like JPMorgan Chase, American Express, and Bank of America.

New fintech startup Petal has decided to toss its hat in the ring, and it’s already set to disrupt the card industry, which is predicted to generate nearly $80 trillion in ten years.

Founded in 2016, the company partnered with FDIC-insured WebBank to launch its credit card, Petal Card, to the general public last October. Petal has already received backing from a number of investors, including Paypal founder Peter Thiel’s venture capital fund Valar Ventures.

Its goal? To help people with no credit build credit using the fee-free Petal Card.

What is Petal Card and how does it work?

Petal

While Petal Card predominantly targets people who are new to credit, it hopes to help anyone who is “credit invisible” get a credit-building credit card that is straightforward and affordable.

Most credit cards rely solely on your credit report to determine your creditworthiness, but for the Petal card, WebBank takes a more holistic — or, as cofounder Jason Gross told TechCrunch, “common sense” — approach to evaluating credit card applications. In some cases, this means looking at your “full digital financial record,” (for example, checking and savings accounts), rather than just your credit and loans.

Put plainly, Gross explains that in addition to your credit, Petal looks at your monthly income and monthly spending to determine whether or not you have the cash flow required to pay your bills on time. In addition to making it easier to gain approval, WebBank’s unique underwriting process means it can offer higher credit limits and lower interest rates to Petal customers who might otherwise only have access to low limits and sky-high rates.

Here are some of the key features of the Petal Card:

• 14.49% – 25.49% variable APR as of December 2019
• $500 – $10,000 credit limit
• 1% cash back on eligible purchases, increasing to 1.5% cash back after 12 on-time payments
• Up to 10% cash back with select merchants — including Gap, Athleta, Banana Republic, Old Navy, Lowe’s Home Improvement, and Casper — when you use a Petal card 
• No late fee, no foreign transaction fee, and no annual fee
• 24/7 customer service

The interest rate offered by Petal Card isn’t low, per se, but it’s low when compared to other credit cards that accept applicants without a credit history. According to CreditCards.com, the average interest rate on credit cards for people with bad credit is 25.33% as of May 2019.

Petal Card really shines when it comes to fees. If you’re using a credit card to build credit, (in other words, paying it off in full each month and only putting a few minor purchases on it), interest rate and credit limit aren’t the most important features. What you really want to go after is a credit card that doesn’t charge annual fees or foreign transaction fees and doesn’t require an initial deposit — a rare to non-existent find for folks who have no credit.

In early May, Petal announced that it would offer cardholders automatic 1% cash back on every purchase made with the card. After six months of on-time payments, those rewards will increase to 1.25% cash back, then to 1.5% cash back once a user has made 12 on-time payments.

While you won’t be able to visit this online-only company in a physical branch location, it does offer 24/7 customer service support online or over the phone.

If you’re worried about security, Petal Card can be trusted. Petal uses its technology to assess applicants but credit is issued by WebBank, a well-reviewed bank based in Salt Lake City, Utah that is FDIC-insured.

An all-in-one budgeting app and credit card

Petal

Petal wants to do more than just offer you credit — it wants to help you understand credit.

Its app aims for transparency, explaining exactly what you owe and what your interest fees will look like if you don’t pay your bill in full. Petal likes to use actual dollars rather than an interest rate percentage that most people don’t fully understand. So, if you can’t pay your bill in full, you can enter the monthly payment you’d prefer to make (as long as it’s above the minimum) and the app will show you an estimate of what you’ll end up spending on interest fees.

You’ll also have a budgeting app with Petal. The company asks you to connect your various bank accounts during the application process, so when you log into your Petal account, you’ll see the balance for your Petal Card alongside your other bank and credit account balances. Having this information all in one place is meant to help you make informed and responsible financial decisions with your Petal Card.

How to apply for Petal Card

You can fill out WebBank’s initial pre-qualification application for the Petal card online in about 15 minutes. The pre-qualification process results in a soft pull on your credit report, so it won’t impact your credit at all.

The pre-qualification application asks for basic personal information such as your birthday, phone number, and home address. You may also be asked to connect your checking, savings, and credit accounts so Petal can get a sense of your earnings and savings as well as your spending habits, which is meant to increase your chances of approval. Petal uses a third-party data provider and connects to your accounts securely, and it never stores your login information.

After this, Petal will let you know if you’re pre-approved for its Petal Card, which gives you a sense of your eligibility without dinging your credit. Keep in mind that pre-qualifying doesn’t guarantee you’ll be approved for the card. If you are pre-approved, you can finish the full application online and Petal will do a hard pull on your credit report, which might have a small, temporary effect on your credit.

Apply for Petal here »

Other ways to build credit from scratch

Petal

While Petal Card might be the first of its kind, there are a handful of time-tested ways to build credit from zero or improve a bad credit score. For example, you can:

• Ask someone to co-sign a credit card application for you
• Ask someone to add you as an authorized user to their credit card
• Open a secured credit card
• Get a credit-builder loan

The first two are ideal if you can find the right person to help you out because they cost nothing. I qualified for my first credit card with my local credit union when I was in college because my Dad was willing to co-sign my application, and this helped me build credit early on in life. By the time I was in my mid-20s, I already had excellent credit.

Being added as authorized user on someone else’s account — meaning you’re given a credit card that’s linked to their account, and all activity, whether theirs or yours, impacts your credit — can work out well, too, as long as you’re wise about who you select. I helped my younger sister build her credit by adding her as an authorized user on one of my credit cards. After only a couple months of using the card, her score had increased significantly. However, if I had run up a large balance or missed a payment, her score probably would have decreased.

If you don’t have anyone else to help you out, opting for a secured credit card is your next best option. Just about anyone can qualify for these credit cards because they’re guaranteed by an initial deposit and come with extremely low limits. It will cost you a little money up-front in the form of a deposit and possibly an annual fee, but the cost is worth it to build your credit. These cards do come with very high interest rates, so it’s important to pay your bill in full each month.

Credit-builder loans are my least favorite option, because I don’t think you should ever have to pay interest fees in order to build credit. However, some people do appreciate the ease of this option, and people who have had credit card troubles in the past might be more comfortable with it.

How Petal Card stacks up

Credit cards will always be one of the more expensive ways to borrow money, and Petal Card is no different. That being said, if you do end up unable to pay your bill in full one month, you can rest easy knowing that you’re not being charged predatory rates.

I would avoid relying on Petal Card to borrow money and instead use it strictly to build credit. It’s an excellent option in that regard, offering the accessibility of a secured credit card without the deposit requirements, fees, and high interest rate.

Plus, while most secured credit cards come with limits as low as $250, Petal Card offers higher credit limits. This helps you decrease your debt-to-credit ratio, an important factor in your credit score, and also shows lenders that you can manage large lines of credit.

Petal Card is designed for people who are new to credit, which is different from bad credit. You might have a harder time getting approved if you have serious negative marks on your credit report. According to Petal’s website, it does look at your credit report, and “applicants who have a history of missed payments or bankruptcy, for example, may not qualify for Petal.” If you do have a colorful credit history, a secured credit card might be a better bet.

I’m also not convinced that it’s ideal for people who already have good credit, although Petal’s website does tout the card as a great second, third, or even fourth credit card due to its low fees. If you have a good credit score and don’t plan on carrying a balance, it’s better to opt for a rewards credit card so you can start earning off your spending. If you do tend to carry a balance on your credit card, or want a card to have on hand in case of emergency, good credit will help you qualify for low-interest credit cards that will be more affordable than Petal Card.

Petal Card might not be the best credit card if you already have a robust credit history, but that’s not really its purpose. Petal Card was created to help the “credit invisible” build credit with an affordable, transparent, user-friendly credit card, and in that regard, it’s shaping up to be the best solution yet.

Learn more about Petal or apply for a card here »

This post was updated on December 23, 2019, to reflect Petal’s new cash-back program with select merchants.