These are the golden times for people who want to fix their past credit problems or establish a credit history from the beginning. Options abound, from standard secured credit cards to specialized credit union loans. One option is the Chime Credit Builder Secured Visa Credit Card, which is a type of hybrid debit and credit card. To know whether the Chime credit card is right for you, understand how it works.
Chime vs. Traditional Credit Card Issuers
Most credit card issuers are direct lenders. When you make charges with one of their cards, they are lending you the money. Chime Financial, headquartered in San Francisco, however, is not a bank but a fintech company.
Chime contracts with other financial institutions and companies to provide services. The Chime Credit Builder card is issued by Stride Bank, while the Chime checking account, which you will need to open the credit card, is through Bancorp Bank and Stride.
Since Chime also partners with Visa, you can use the Chime Credit Builder Secured Visa Credit Card everywhere Visa credit cards are accepted.
How the Chime Credit Builder Card Works
So is Chime a credit card or something else entirely? The Chime Credit Builder card is a secured credit card with a twist. Instead of putting a specific amount of money down as a security deposit that stays with the issuer until you close the card or it is transitioned into an unsecured account, the money in your Chime checking account secures the card.
Here are the steps to start the account, which are all completed on the Chime website.
1. Open a Chime checking account. There are no monthly fees for this account, and you can use it as you would any other checking account. To be eligible for a Chime Credit Builder card, you must receive an eligible direct deposit — usually a paycheck — of at least $200 within the past year.
2. Choose “Credit Builder.” After you open the checking account, you can opt in to “Credit Builder” and complete the online form.
3. Fund your card. Move the amount of money you want to charge with the card from your checking account to your credit builder card account. That will be your card’s limit.
You will receive a Chime Credit Builder card in the mail. You’re free to use it wherever Visa is accepted (pretty much everywhere that takes credit cards). Chime will take the money from your secured account and automatically pay your monthly charges in full. This way you can’t carry over a balance, as you could with any other type of credit card.
To ensure you always have funds available for your card, you can enroll in “Move My Pay,” a feature that automatically transfers an amount of your choosing from direct deposits into your Chime Credit Builder account.
How the Chime Credit Builder Card Affects Your Credit
Under most circumstances, when you apply for a credit card, the issuer will make a hard credit inquiry to determine qualification. There is no credit check for a Chime Credit Builder card, though. A hard inquiry will not be placed on your credit file, which can temporarily lower your credit score.
Once you have the card, Chime will report your monthly payment activity to the three major credit bureaus, TransUnion, Equifax and Experian. Since payment history is the most important factor in a FICO score, the more on-time payments you have listed on your credit report, the better.
What Chime does not do is report credit utilization to the bureaus. This is because you are using your own funds and not technically borrowing money from a set credit line. Consequently, you never have to worry if your balance is too close to the credit limit, which can negatively affect your credit utilization ratio.
[Read: Best Secured Credit Cards.]
Pros: Chime Credit Builder Card Fees and Terms
There are a number of especially positive aspects to this card, including:
— No added interest. Since you are using your own money and paying off the amount you spend with the cash in your checking account, there is no revolving debt. That means interest is not added to anything you buy.
— No annual fees. Unlike some secured cards that are designed for people with low credit scores or unestablished credit, this card doesn’t charge an annual fee.
— No strict credit limit. Traditional credit cards have a fixed credit limit, but this card doesn’t. The money you move into your credit builder secured account sets your spending limit, so it’s entirely under your control. Whether your account has $200 or $2,000, that’s your limit.
If you want to guarantee that you never descend into expensive credit card debt as you charge, this card can work well for you. It offers convenience and safety as you build up a credit score.
Cons: What the Chime Credit Builder Card Lacks
There are some disadvantages to the Chime Credit Builder Card, which include:
— No rewards. Many cards for credit beginners and rebuilders have rewards programs that allow you to earn cash or points as you charge. Some also have a sign-up bonus that offers cash or points when you charge at least a set sum shortly after opening the card. This card doesn’t have either.
— No incremental payments. Maybe you want to have the flexibility of buying something expensive and then paying over time because you don’t have the available cash to cover the cost in full. You won’t have that option with your Chime card.
— No perks. Some credit cards are packed with perks, such as cellphone insurance, trip protection, free checked bags on flights, hotel room upgrades and discounts on streaming services. This card has none.
If you’re looking for cards with at least some of these features, you’ll need to look elsewhere.
For example, the Capital One Quicksilver Secured Cash Rewards Credit Card offers 1.5% cash back on all purchases made every day. You can also earn 5% cash back on hotels and rental cars booked through Capital One’s Travel portal. (See Rates & Fees)
If you’re in college, the Discover it Student Cash Back card offers 5% cash back on different shopping categories each quarter, like gas, groceries and restaurants, up to the quarterly maximum when you activate. Discover will match your cash back amount at the end of your first year. (See Rates & Fees)
A credit-builder loan from a credit union can also be helpful. Rather than get the loan amount upfront, you make payments first, which are noted on your credit file. And if you’re most interested in building your credit history without a credit card at all, you may want to consider enrolling in Experian’s Boost program. With Boost, you can add your utility and cellphone accounts to your credit report. Those on-time payments will show up and be factored into your credit scores.
[SEE: Best Credit Cards to Build Credit]
Bottom Line on the Chime Credit Builder Card
If you want a credit card with which you can never overspend or rack up costly debt, the Chime Credit Builder card can make a lot of sense. As you use it, you can develop or improve a credit score, because your steady payment pattern will be recorded on your credit file. Then when your credit score is higher, you will have the option to open an unsecured credit card that has a wide span of helpful and valuable features.
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Is the Chime Credit Builder Card Worth It? originally appeared on usnews.com
Update 08/19/24: This story was previously published at an earlier date and has been updated with new information.
