Is Kikoff a good way to build credit?

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When he’s not making three-pointers, NBA star Stephen Curry wants to help you improve your credit score. He’s an investor in Kikoff, a new credit-building platform targeted at Gen Zers and millennials.

How Kikoff works

Kikoff users receive a $500 line of credit that they can only use at the Kikoff store. The cheapest way to get started is to subscribe to the Kikoff Credit Service, which costs $2 per month. The online store also offers e-books about personal finance.

If you sign up for the $2 monthly plan, you’re only using a tiny fraction (less than 1 percent) of your $500 credit line, which is a very favorable credit utilization ratio. Kikoff has basically designed a microloan system that’s structured to demonstrate credit-building activity. It reports these lines of credit to two of the three major credit bureaus (Equifax and Experian).

By using a Kikoff account responsibly, the company notes that customers can positively influence several key aspects of their FICO credit score, especially their payment history (35 percent of the FICO formula), how much they owe (30 percent) and the length of their account history (15 percent). It boasts hundreds of thousands of users and has raised $42.5 million in venture capital.

The competition

There’s a large market of people looking to build or rebuild their credit scores. FICO says 79 million U.S. adults have credit scores below 680 (which the firm notes is “a common lender threshold of acceptable credit”), and 53 million can’t even be scored because they don’t have enough information in their credit file. Combined, that means roughly half of all American adults have subprime credit or no credit whatsoever. It’s safe to say there’s a demand for credit products tailored to beginners and builders.

Credit-builder loans

In some respects, Kikoff is similar to credit-builder loans, which are essentially a form of forced savings that are structured to build credit because the monthly installments are reported to the credit bureaus. At the end of the term (perhaps a year or two), the account holder gets to keep most of the money they set aside, usually minus some interest and fees. Saving money on your own would be more cost-effective and provide more liquidity, but it wouldn’t directly improve your credit score. That’s why credit-builder loans appeal to some individuals.

Credit cards

Another popular credit-building method is to sign up for a secured credit card. The customer puts down a deposit (often a few hundred dollars) which typically serves as the credit line. The lender can keep the deposit if the cardholder defaults, but the idea is that the customer will use the card and pay their balance each month, with the aim of improving his or her credit profile enough to qualify for a traditional, unsecured credit card after six to 12 months (at which time the issuer refunds the deposit).

Assuming you pay your bills on time and in full to avoid interest and sign up for a card that doesn’t charge an annual fee, a secured card is probably the best of these credit-building options because it has the broadest utility. You can use these cards wherever the card network (e.g., Visa or Mastercard) is accepted. And they often report to all three credit bureaus. The Capital One Quicksilver Secured Cash Rewards Credit Card is a good example; it even gives 1.5 percent cash back on every purchase.

There are also some unsecured credit cards specifically aimed at credit builders and rebuilders—such as the Petal® 1 “No Annual Fee” Visa Credit Card, the Tomo Credit Card and X1 Card—that practice cash flow underwriting. They don’t place as much importance on your credit score; many of their target customers don’t even have credit scores. These companies are much more interested in applicants’ incomes and expenses.

Their ideal customers have solid incomes and savings habits but have fallen through the cracks of the traditional credit scoring model for one reason or another. Because of their detailed underwriting practices, these three startups can potentially offer much higher credit limits than secured cards, too.

Alternative credit monitoring services

Another way to improve your credit score is to sign up for an alternative credit monitoring service such as Experian Boost, Perch or eCredable Lift. The first two are free and eCredable Lift costs $24.95 annually. Each works a little differently, but the basic summary is that you can sign up to get certain existing payment histories—which are not traditionally counted in credit scoring formulas—incorporated into your reports. Examples include rent, streaming services, utilities and more. These alternative credit monitoring services offer considerable upside, potentially at no cost, with no real downside since you can unlink the accounts if the additions don’t help your score.

Bottom line: Is Kikoff a good deal?

It’s not bad, but it wouldn’t be my first—or only—choice. There are other ways to build or rebuild your credit score that cost less money and offer a broader appeal.

If you want more purchasing power while building credit, then go with Petal, Tomo or X1. If you only plan to spend a little but still want to buy things with a credit card and establish a relationship with a credit card issuer, then opt for a secured card. If you want an immediate, free way to improve your credit score, then try Experian Boost or Perch. If you want to improve your credit score while setting some money aside, then a credit-builder loan is your best bet.

Maybe Kikoff could bring some incremental benefits, but I wouldn’t put all my eggs into that basket. It may cost as little as $2 per month, but there’s no evidence that it helps your credit score more than these other strategies, and each of those could either cost less or offer additional capabilities—Sometimes, they can even do both.

Have a question about credit cards? E-mail me at ted.rossman@bankrate.com and I’d be happy to help.