Credit cards fulfill three primary functions: facilitating transactions, building credit, and providing a revolving credit account. The best credit cards also generate rewards that you can use to discount your purchases.
For those who can’t get a credit card or don’t want one, we’ve put together a list of credit card alternatives that fulfill those same functions. Here’s what you should know about them to determine which ones make the most sense for you.
The Best Credit Card Alternatives in 2022
The Best Credit Card Alternatives Compared
|Alternative||Primary Use||Costs||Credit Check||Reports To||Use In|
|Grain||Revolving line of credit with no credit check||1% finance charge per withdrawal; 15% APR on balances||No||Experian, Equifax, and TransUnion||Online and in stores|
|Tomo||Credit card with no credit check, fees, or interest||None||No||Experian, Equifax, and TransUnion||Online and in stores|
|Extra||Debit card that builds credit||$7 monthly fee||No||Experian and Equifax||Online and in Stores|
|Petal||Credit card with no credit check||12.99% to 29.39% APR on balances||No||Experian, Equifax, and TransUnion||Online and in stores|
|Paypal||Facilitating cashless transactions||N/A||No||N/A||Online and certain stores|
|Electronic Wallets||Facilitating cashless transactions||N/A||No||N/A||Online and certain stores|
Best Credit Card Alternatives
Credit cards have a wide variety of beneficial features, and it’s hard to find alternative accounts that can serve as adequate substitutes. There’s a reason why credit cards are so popular, with Americans carrying nearly four credit card accounts on average.
That said, you can replicate their benefits with a combination of multiple credit card alternatives. Here are our favorite substitute tools you can use to facilitate transactions, build credit, finance purchases, and earn rewards.
Grain actually calls itself a “credit card alternative”. It’s more like a line of credit than a credit card, but since both are revolving debt accounts, it serves many of the same purposes. Here’s how it works.
To sign up for Grain, all you need is a checking account and an iPhone. There’s no credit check. Just download the app from the App Store and link it to your bank account. Grain will offer you a line of credit up to $1,000 based on your bank account activity.
If you accept, you can take advances from the credit line. They’ll show up as a deposit in your linked account. You can then spend those funds with your debit card or withdraw them as cash.
As you pay back your advances, Grain reports your activities to the credit bureaus, which helps you build a good credit score. It’s a viable financing option for those who can’t qualify for a credit account otherwise.
That said, it does have its drawbacks. Most notably, there are several hefty costs. First, though they don’t disclose the amount, Grain reserves the right to require a security deposit as part of their credit line offer.
In addition, there’s a 1% finance charge for each cash advance, and Grain starts accruing interest on the balances immediately at 17% APR, though you can reduce it to 15% if you sign up for autopay.
Tomo’s offering is still technically a credit card, but it avoids the three primary drawbacks of most credit card accounts. Let’s take a look at each one in turn.
The first significant drawback to credit cards is the credit check requirement. Typically, a prospective credit card issuer pulls your score when you apply. For better or worse, that prevents many would-be card owners from getting an account.
Providers are less interested in working with people who have bad scores because they’re riskier. Even if a credit card company is interested, they’ll usually only offer secured credit cards.
Unfortunately, to get a secured credit card, you need to provide a cash deposit equal to the secured card’s credit limit. It’s a little like a prepaid card, but you only prepay once.
Conversely, Tomo’s credit card doesn’t have a credit check or require any form of collateral. They determine whether you qualify using your financial history and a proprietary algorithm that approves people even with no credit history.
The second drawback to credit cards is that many accounts charge an annual fee. Credit card alternatives often charge something similar, which they may present as a monthly membership or subscription fee. In contrast, Tomo’s account is free to use.
The final drawback to credit cards is that their interest rates are much higher than most forms of borrowing. The average credit card interest rate is 16.13% in December 2021.
But Tomo never charges interest on your credit card debt. It uses a 7-day autopay system to help you pay on time and keep your utilization ratio down. Even if you can’t pay back what you owe, you won’t incur a late fee or interest.
Tomo is a great way to get all of the benefits of a credit card without the drawbacks. People with bad credit and no room in their budget for fees or interest can qualify, earn 1% cashback on their transactions, and build their credit score.
Traditionally, there’s no way to build credit with a debit card. They’re not credit accounts and don’t let you finance anything, so there’s no way for them to contribute to your score.
Enter the Extra Debit Card. Extra’s claim to fame is that it’s the first debit card that lets you build credit and earn rewards, just like a credit card.
However, because it’s really a debit card, there’s no credit check to apply. You can also connect it to your bank account as usual, though that’s where the similarities with traditional debit cards end.
When you link the card to your checking account, Extra’s spending limit begins tracking your balance in real-time. When you complete a transaction, Extra pays upfront, then charges your bank account for it the next business day.
Extra then reports those purchases along with your credit utilization to Experian and Equifax to build your personal credit score. One of their subscription plans allow you to accumulate reward points that you can spend in their store, which sells Airpods and gift cards, among other things.
Because you never carry a balance, there’s no interest on your purchases. However, there is a monthly membership fee that starts at $7.
Petal is another card without the drawbacks of a traditional credit card. First, Petal doesn’t pull your credit report when you apply for an account. Instead, they review your bank account history and use it to generate a “Cash Score”.
Like a credit score, it represents your creditworthiness, but it’s based entirely on the earning, spending, and saving activities in your bank account. As a result, people with no credit history or a low score can still qualify.
Petal offers two rewards credit cards. Neither has an annual fee, but they differ significantly in other areas.
The Petal 1 card has a possible credit limit between $300 and $4,000. The APR ranges from 19.99% to 29.49%, and it offers cash back between 2% and 10% at select stores. It’s for people with “low-to-fair credit or cash flow” who want to improve their score.
The Petal 2 card has a possible credit limit of $300 to $10,000, and its APR ranges from 12.99% to 26.99%. It only offers cashback up to 1.5%, but there are absolutely no fees. That means no late or returned payment fees.
It’s for their slightly more creditworthy applicants. If you want a credit card but can’t get a traditional one due to your short or poor credit history, Petal may be the best option for you.
Cash is becoming increasingly obsolete as a form of payment. In 2020, it accounted for just 19% of all transactions, down from 26% in 2019. That change was likely due to the pandemic, which forced a massive shift toward online purchases.
Credit and debit cards have long been the primary payment option for goods and services over the internet, but they’re not the only ones. You can also use online payment systems like Paypal or the Cash App to facilitate your digital transactions.
They’re not credit accounts, which means they don’t build your credit, but there’s also no credit check to apply. They usually don’t charge any fees for purchases either.
If all you need is an alternative payment method for non-cash transactions, Paypal is a good choice.
Online payment systems like Paypal aren’t the only ways to make payments online without a credit or debit card. You can also use electronic wallets like Apple Pay and Google Wallet when you’re ready to check out.
Electronic wallets are digital accounts that can hold and transfer your funds, just like a physical wallet. They’re even more flexible than Paypal since you can load them up with various payment methods and potentially even use them in person through your phone.
However, once again, they don’t help you build credit or finance your purchases on their own. A digital wallet is just another means of facilitating transactions without the need for cash, credit, or a debit card.
Find the Right Combination of Alternatives
Credit cards are one of the most popular forms of payment because they facilitate transactions, build credit, and finance purchases on a revolving basis. However, those functions are no longer exclusively their purview.
Even if you can’t qualify for a credit card because you lack credit history or the money for a security deposit, you can still access substitutes that provide many of the same benefits.
Ask yourself why you wanted a credit card, then select a combination of credit card alternatives that can fulfill those needs.
Nick Gallo is a Certified Public Accountant and content marketer for the financial industry. He has been an auditor of international companies and a tax strategist for real estate investors. He now writes articles on personal and corporate finance, accounting and tax matters, and entrepreneurship.