Is Kikoff a good way to build credit?

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 credit-building platform founded in 2019. There are a lot of people looking to build or rebuild credit, but also a lot of possible solutions. Here’s how Kikoff stacks up with the rest of the market.

How Kikoff works

Anyone can sign up for Kikoff without a credit check. Most Kikoff users receive a $750 credit line that they can only use at the Kikoff store. The cheapest option is a $5 monthly charge toward the $750 credit line. The store also includes other items for purchase, such as electronic tutorials about financial literacy and entrepreneurship.

Hopefully users find the materials useful, but really this whole process is just a clever way to create a “loan” out of thin air, which Kikoff reports to two of the three major credit bureaus (Equifax and Experian). If you spend the minimum $5 to keep the credit line active every month, you’re using a tiny fraction (less than 1 percent) of your $750 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.

There’s also a premium version with a $2,500 credit line starting at $20 per month. Premium users also have the ability to report future rent payments.

And for a one-time $50 fee, any Kikoff user can identify rent payments from the past 24 months for the credit bureaus. This addresses a significant pain point which is that rent is the largest monthly expense for millions of Americans, yet it often doesn’t appear on credit reports. There are, of course, plenty of other rent reporting services, and some are less expensive.

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). To date, it boasts more than one million users and has raised more than $40 million in venture capital.

Kikoff says the average user with a credit score below 600 increases their credit score by 58 points. That’s impressive, but still leaves them shy of the “good credit” threshold. As the company’s name suggests, Kikoff might be a useful starting point, but over time, it’s important for users to layer in additional credit-building strategies.

The competition

Experian says 35 percent of Americans have FICO scores lower than 680 (which roughly serves as the dividing line between “fair” and “good” credit). Plus, FICO reports that 25 million consumers are considered credit-invisible, and another 28 million have thin credit files that are insufficient for generating reliable credit scores.

Combined, this means more than half of U.S. adults have either subpar credit or no credit. As a result, there’s plenty of demand for credit products tailored to beginners and builders. Here are some of the alternatives:

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 is more cost-effective and provides more liquidity, but it doesn’t directly improve your credit score. That’s why credit-builder loans appeal to some individuals.

Credit cards

Getting on a parent’s credit card as an authorized user is an excellent way to jumpstart your credit score by piggybacking off the parent’s hopefully positive card habits.

If you want immediate credit in your own name, a popular credit-building method is to sign up for a secured credit card. In this case, 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).

How to choose

Assuming you pay your bills on time and in full to avoid interest — and that you 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 cards specifically aimed at credit builders and rebuilders — such as the Petal 1 “No Annual Fee” Visa Credit Card* and the TomoCard* — that practice cash flow underwriting. This means that 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, Altro or eCredable Lift. The first two are free, and eCredable Lift costs $9.95 monthly. Each works a little differently, but the basic premise 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. Be aware, however, that any credit score benefit gained from signing up for these services may be reversed if you choose to unlink your accounts.

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 a card like the Petal 1 or TomoCard. 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, opt for a secured card or an authorized user relationship. If you want an immediate, free way to improve your credit score, consider trying a service like Experian Boost. If you want to improve your credit score while setting some money aside, then a credit-builder loan may be 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 $5 per month, but there’s no evidence that it helps your credit score more than these other strategies, and each of those costs less and/or offers additional capabilities.

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

*All information about the Petal 1 “No Annual Fee” Visa Credit Card and the TomoCard has been collected independently by Bankrate. Card details have not been reviewed or approved by the issuer.