What You Need to Know and Alternatives


It’s no secret that establishing credit can be a treacherous experience for many people. In particular, if you’ve never had a parent with good enough credit to add you as an authorized user, you may go through your entire young adulthood without any credit at all. When you finally decide to take out a loan, you may be shocked to find denial from every corner. In an emergency, you may have to resort to a local pawnshop, title lender or payday loan outlet.

If you’ve struggled to borrow money in the past, is tech company, LendUp, a good way to start building credit today? Here’s what you need to know about the company and your options for building credit when you lack a lot of other resources.

Five Things to Know About Getting Approved for Your First Line of Credit

You Have the Right to Understand Your Credit Report

If you’ve failed to establish credit in the past, it could be because you have negative information on your credit report. Negative information includes unpaid utility bills, judgments against you (including demands to pay child support), or even unpaid phone bills.

You can look up your credit report for free from AnnualCreditReport.com. You can also check out your full credit profile using sites like Credit Karma or Credit Sesame.

If you find any information that doesn’t seem correct, you can dispute the errors with the credit reporting agencies.

Unpaid Bills Aren’t a Death Sentence

Once you know what’s on your credit report, you might become obsessed with “fixing it.” You’ll suddenly start to notice the signs that say, “Fix bad credit. $295.”

While you can dispute errors on your credit report, getting rid of valid information your credit report isn’t so easy (and it’s illegal). Negative credit information will stay on your credit report for seven years. Instead of wasting your money (and worse, your time) on trying to get rid of negative information on your credit report, make a plan to establish good credit.

Once you start establishing good credit history (such as on-time loan payments), all the negative information on your credit report starts to be overwhelmed. Sure, lenders don’t want to see that you didn’t pay your water bill two years ago, but they care a lot more to see that you did pay your credit card last month.

An Emergency Isn’t the Right Time to Establish Credit

Knowing the importance of good credit history, you probably want to get busy taking out credit, especially if you need cash now. Unfortunately, that isn’t always a good choice. Establishing credit in an emergency typically doesn’t make sense. It’s better to focus on overcoming the emergency (and even letting bills go unpaid) than to take out usurious loans that will trap you into paycheck-draining payments for months.

Once the emergency cash crunch has subsided, and you have some mental bandwidth, make a commitment to establish good credit using proven methods.

If You’re a U.S. Citizen with Income, You Can Establish Credit

If you’re a U.S. citizen or a U.S. permanent resident, starting to establish credit is not too difficult. The place to start is a secured credit card. Since most secured credit cards require a deposit (such as a deposit of $50 to $500), the lender takes on very little risk if you default. Additionally, the credit card issuer may require proof of income (such as a W-2 job or evidence of a disability payment). As long as you can prove your income and can secure a deposit, you can start building credit.

Most secured credit card issuers will issue credit to you, even if you have evidence of unpaid bills (such as cell phone bills or unpaid utilities) on your credit report.

Once You Have Credit, Building Credit Is as Simple as Making On-Time Payments

Once you have a secured credit card, you can start building credit by making on-time payments. That’s really all there is to it. Charge a little something on your secured card every month (perhaps a single tank of gas, or a small grocery run), make the payment in full, and move on with your life. Within 6 to 12 months, you will have an established credit report, and in all likelihood, an okay credit score.

Does LendUp Have a Value Proposal in the World of Building Credit?

LendUp bills itself as a payday alternative that helps people in trouble build credit. Do they really offer help? This is what we found.

Where Is LendUp Available?

LendUp has at least some products available in the following states: Alabama, California, Florida, Hawaii, Idaho, Illinois, Indiana, Kansas, Louisiana, Maine, Minnesota, Mississippi, Missouri, New Mexico, Ohio, Oklahoma, Oregon, South Carolina, Tennessee, Texas, Utah, Washington, Wisconsin, and Wyoming.

What Products Does LendUp Offer?

Credit Cards

Right now LendUp offers two secured credit cards (both in beta-testing right now). The L Card Visa® credit card has interest rates ranging from 21.74% to 31.74% and annual fees ranging from $0 to $60. The annual fee is immediately deducted from your credit limit. Late payments on the card cost $7.

The Arrow Card Visa® credit card account has interest rates ranging from 21.24% to 31.24% with annual fees ranging from $0 to $75. Late payment fees cost up to $25.

In general, we recommend that borrowers choose secured credit cards with no annual fee, so these two cards are not ideal for the secured credit card customer.

Payday Loans

LendUp offers a short-term (7- to 30-day) loan product. Instead of charging interest, LendUp charges a loan fee. For example, a loan fee on a $250 loan is $44. Unlike most payday lenders, LendUp actually calculates an APR on their loans. APRs on the loan range from 214.13% APR to 917.71% APR.

When you borrow money from LendUp, you’ll repay the entire loan and the fee in your next paycheck. These “payday” loans aren’t reported to the credit bureaus if you pay on time.

Short-Term Installment Loans

LendUp also offers short-term installment loans with terms ranging from 2 to 12 months. These are small loans ranging from $100 to $1,000. You’ll pay a 5% origination fee (called an administrative fee), and the following interest rates:

  • 2.5% per month on that part of the unpaid principal balance up to and including $225.
  • 2% per month on that portion of the unpaid principal balance above (in excess of) $225 up to $900.
  • 1.5% per month on that part of the unpaid principal balance in excess of $900 up to and including $1,000.

In total, these loans have effective APRs of 31.78% to 68.02%. In good news, on-time payments may be reported to the credit bureaus.

Will LendUp Really Help You in a Pinch?

The good news about LendUp’s credit products (especially their payday loans) is that they are available in a pinch. The rates are astronomical, but the rates are fixed rather than compounding. If you’re facing a one-time emergency (rather than a chronic income shortage), LendUp is an okay option. If you have a credit card, use that instead, but LendUp’s fees are likely lower than paying a couple of late fees.

LendUp’s other products are not ideal in a pinch. If you can qualify for one of LendUp’s installment loans, you’re probably well on your way to establishing credit, and should start looking for a credit card with no annual fee.

Will LendUp Really Help You Build Credit?

What Alternatives Should People Consider?

If you’re a person with no access to credit and you’re facing a financial emergency, these are the three options to consider before you actually take out a loan from LendUp or another lender.

Earn Income Quickly

Loans from LendUp usually have a $250 limit for most borrowers. Most people can earn up to $250 in a few days by simply putting themselves to work.

If you’re already an approved Uber or Lyft driver, get out and start driving. Let your friends know that you’re available to babysit, clean their houses, or mow their yards. Even better, start walking through your neighborhood with a mower (or cleaning supplies) in hand, and tell everyone you’re in business. Haul a pile of scrap to the dump. Obviously, it would be exhausting to hustle this hard every day, but in an emergency, extra income can keep your head above water.

Sell Anything You Can

Do you have sneakers, a video game console, an unused bike or car, or another asset just lying around your house? List it on Craigslist or OfferUp. The faster you can sell an item, the faster you can make sure your bills get paid.

Ask for a Loan or Financial Help from Family and Friends

Final Take on LendUp

Serving people with no credit history or very bad credit history isn’t easy. LendUp has to charge crazy high rates to earn even the slimmest profit margins. At least they are working to help their customers understand why establishing good credit matters so much. Very few payday lenders will calculate their APR, but LendUp does, and they deserve credit for that.

All that said, LendUp is rarely a good option. Almost any other loan or income-earning option makes more sense than taking out a payday loan. It’s just too expensive.

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