How to Build Credit With a Credit Card From Grain

Chang Fu
Dec 22, 2020

So what’s a Grain credit card or in general a “digital credit card”? Well, it actually is not as obvious as you think. Surprise! It’s not a traditional credit card company. A Grain credit card is a revolving line of credit based on your income and cash flow, rather than your credit score. You get cash advances to your linked debit card and bank account as you spend money in your normal bank account. In that sense, it’s not too different from payday advance apps like Dave or Earnin. However, instead of paying all the money on the Grain line of credit back on your next payday, you pay back in monthly payments like a traditional credit card.

How to Get Started with Grain

Transforming your debit card into a credit card all starts with downloading the free Grain App. The Grain App doesn’t require a credit score check and all you need is a checking account to get started. Instead of using a credit score to decide your line of credit, the Grain App uses information from your checking account cash flow such as income and expenses.

How much does Grain cost?

So how much does it cost? There is a 1% finance charge each time you make a withdrawal. You are only charged interest on the credit you use, essentially the amount you borrow on your revolving line of credit (12% APR with Auto-Pay on or 15.99% APR with Auto-Pay off). There is a late fee on late payments (5% of minimum Payment due or $5, whichever is less). In summary, the costs can really add up if you’re not careful: withdrawal fees, APR, plus late payment fees. However, you might not qualify for other unsecured credit cards and don’t have the money for a deposit on a secured credit card so Grain becomes the only option for you.

What is a Security Deposit for Credit?

Grain asks for a security deposit in exchange for an open credit line because grain is what is called a ‘secured credit account’. Secured credit cards require a security deposit and in the event of a default or missed payment, Grain uses your deposit as collateral. This is similar to how mortgages use real estate for collateral or auto loans uses the vehicle as collateral. All major credit card companies offer secure credit card options.

Is there a credit check?

Grain, similar to Possible Finance, doesn’t take into account your credit score when deciding how much you can borrow. Just because they don’t use your credit score doesn’t mean they don’t run some type of credit check, such as with small credit bureaus like Clarity. Grain will use your bank account information such as income and cash flow to determine your initial credit line. For some folks, depending on your income and spending habits, Grain may require a security deposit to reduce their risk and increase the chance you will pay back.

How do withdrawals work?

Withdrawals on your Grain credit card will incur a 1% finance charge, likely to cover the costs Grain incurs to send money directly to your debit card. You should expect the money by the end of the business day. On weekends like a Saturday, you should expect the money by end of the day Monday. There is a button for you to withdraw money in your Grain app and you won’t be able to withdraw more than your credit limit.

How do payments work?

You are initially enrolled in auto-pay which means every month, Grain will automatically deduct your account for the minimum due payment. The minimum payment will be the greater of $25 or 10% of the previous balance plus interest, plus any amount past due. If your balance is less than $25, the minimum due will equal the balance on the account. In addition, you have the choice to pay early or pay manually, albeit at a higher APR. Plan ahead if you choose to pay early because it can take up to 4 business days for the payment to clear. Unfortunately, Grain does have late fees and there is not much flexibility to paying a few weeks later without incurring fees. Late fees are usually 5% of the minimum payment due or $5, whichever is less. Payments are where it contrasts significantly with an installment loan from Possible Finance. On a Possible loan, you can reschedule your payments directly within the app with no fees up to almost a month later. In addition, payments are split up into 4, forcing you to pay back the loan over time and making sure you reduce the balance over time. In this way, you won’t run into debt trap issues where you continue to carry a large principal balance on your line of credit or on your credit card for a long time, with no way to pay it back.

Does Grain build credit?

In short, yes; Grain can be viewed as a great credit builder card option. Grain reports to the credit bureaus.

Since payments are reported to the credit bureau, you’ll be able to build good credit history as you make on-time payments to Grain and pay down your credit line. Payment history makes up 35% of your FICO credit score and is one of the most important factors for lenders and creditors. As long as you pay your minimum payment with Grain, you’ll be able to show on-time payments and Grain will report positive payment history to the credit bureaus.

There are many ways you can increase your FICO score that you should be aware of. Using a building credit card like Grain will affect your credit utilization ratio, which makes up 30% of your FICO score. For example, if your max credit limit on your Grain credit card is $500 and you have $250 outstanding, your credit utilization on your credit card is 50%. You can combine all your credit cards and loans together to get a combined credit utilization which impacts credit reporting.

Unlike Possible which counts as installment credit, Grain is a different type of credit called revolving credit due to it being a revolving line of credit. Because it’s a different type of credit, using Grain and Possible Finance at the same type will result in a diversified credit mix on your credit report. As a reminder, your credit mix makes up 10% of your FICO score.

When is your monthly payment reported by Grain?

Grain reports payments every month. They report to Experian, TransUnion and Equifax and report your credit line, current balance, account status and payment history as it was on the day of your most recent statement closing date. Grain starts reporting your Grain account after your first monthly payment cycle so don’t expect an immediate change in your credit score in just the first month. After the first month, you can easily view your credit score in the profile tab of the app.

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Pros and Cons of Using Grain

As with any product, there’s pros and cons of using Grain. Read on so you’re informed before applying for a digital credit card from Grain.

Pros

#1 Access to money fast

Grain is a card issuer that can get you the money you need straight to your debit card the same day that you apply.

#2 Get approved even with a bad credit score

It’s not easy to qualify for a credit card or line of credit when you have poor credit. Grain doesn’t look at your credit score so you might have a better chance of getting approved.

#3 Diversify your credit mix

A “digital credit card” is a revolving line of credit and counts as revolving credit. It will help diversify your credit mix on your credit record if you have all installment credit (car loan, installment loan, etc.) currently

#4 Build credit history

On-time payments will build positive credit history over time and hopefully improve your long-term financial health, qualifying you for cheaper and better financial products in the future.

#5 Lower APRs than many credit cards

Grain’s digital credit card interest rate is between 12% and 16%. That’s significantly lower than many major credit card companies.

Cons

#1 Fees and interest can add up

Because there’s a withdrawal fee, interest, and a late payment fee, costs can add up. Try to minimize your number of withdrawals by not making small withdrawals all the time and don’t be late on your payments. It’s not only bad for your credit history but the costs can add up! That said, the APRs are generally lower than credit cards that are upwards of 20%.

#2 You need a valid bank account

You’ll need some minimum history and income going to your bank account that you link. In addition, your bank needs to be integrated with Plaid, the 3rd party solution that Grain works with to connect to your bank account.

#3 You might be asked to secure your digital credit card

Depending on your income and the cash flow going through your connected bank account, you may be asked to put a security deposit. In that sense, it’s not too different from a secured credit card. But that’s not why you applied in the first place right?

#4 Keeping a consistently high balance may put you in a bad situation

As with all credit cards and lines of credit, consistently keeping a high balance will increase your interest expense over the life of your debt as well as reduce your credit utilization ratio. Be sure to pay your credit card balance quickly and when you can to stay away from the credit card debt trap.

Who is a Grain credit card good for?


#1 You have bad credit

We get it, sometimes unexpected events can cause us to miss payments or even default on loans and bills. If you have bad credit, the Grain App is the perfect solution to get you back on track. Grain doesn’t offer you credit lines based on your previous credit score but will open up lines of credit based on your checking account activity and the ability to put down a security deposit. When other financial organizations are leaving you out to dry and you feel like raising your credit score is hopeless, it may be time to try Grain.

#2 You can’t get a credit card

You aren’t alone. Not being able to gain access to a line of credit when you have a bad credit score can feel hopeless. Millions of people just like you are struggling to gain access to credit and grain offers secured credit card options that don’t require deep background checks and digging into your credit history.

If you have bad credit and you need cash as well as a way to build good credit history, Grain is worth a try. In that sense, the people that should use Grain should also use Possible Finance.

Access to quick money without getting into a credit card debt cycle is difficult and there are few companies out there that are friendly and flexible to consumers. You could easily go wrong with traditional payday loans or even cash advance apps that hide costs in tips and subscription fees. Grain isn’t like that and they’re fully transparent about the fees as well as the APRs. If you have bad credit history and need money quickly, give Grain a try and let me know what you think at [email protected]

Alternatives to using Grain

Possible Finance

If you’re thinking about using Grain, check out Possible as well. You can use both at the same time. With Possible, borrow money up to $500* and build credit history. Possible is an installment loan with flexible payments over several months. It’s the best alternative to traditional payday loans and payday advance apps.

Payday Advance Apps

It seems like every app these days has a cash advance feature like Dave, Earnin, Brigit, and even Chime. Just remember that although you can advance money early from your paycheck often, getting into that cycle will significantly reduce your paycheck when it arrives. In addition, you won’t be able to build credit history since those aren’t considered loans. Lastly, watch out for the overall costs. Subscription fees, tips, and disbursement fees can easily add up to as bad of an APR as a payday loan.

Self

If you’re just looking to just improve your credit score and have extra money to spare every month, give Self a try. Self is a credit builder loan where you can’t access the loan that you consistently pay every month. Instead, the loan is “locked” in a bank and once you’ve fully finished paying off the loan, you get the loan returned to you. Therefore, it’s basically a savings and credit building product. Self reports payments to all the major credit bureaus and using the Self credit builder comes with fees. You can find out more in our apps like self blog posts.

Final Take

A Grain credit card is useful if you have bad credit, need money, and want to build credit history. Here at Possible Finance, we believe a Grain credit card is one of the few products available to consumers with bad credit that are friendlier and better than conventional choices like payday loans or payday advance apps. In addition, they’re transparent and show you all the fees and costs upfront.

Chang Fu

Chang is an avid writer, among other things, at Possible. He grew up loving reading and writing, creating his own poems and even a book he's now hidden in an old closet, unpublished. His financial experience at a large bank along with his passion for technology to help underserved communities inspires him to write for Possible.

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