Arro Card Review: Low Barriers to Credit Access, for a Fee

No credit requirement

Unlike traditional credit cards that require a hard inquiry on your credit reports to determine eligibility, the Arro Card relies on a soft inquiry only, which won’t affect your scores. The company uses alternative data like income and bank account balance to determine approval.

Arro says applicants with no credit history can apply but that other credit factors, not including credit scores, will be used during the approval process.

(Note that because the company uses information like bank account balances to determine eligibility, applicants must connect a bank account to apply for the card.)

Comprehensive credit reporting

The Arro Card reports to all three credit bureaus — TransUnion, Equifax and Experian — which means that information like your card payment history will be recorded via these companies.

Because your activity on the card is reported, with good payment history your credit scores may increase and you may be eligible for better credit cards.

Arro also offers free credit score access when you sign up with the company.

Path to a higher credit limit

Arro says cardholders have opportunities to increase their starting credit line by completing gamified personal finance lessons, challenges and videos on the startup‘s app. Users can reach a credit limit of up to $2,500 on their Arro Card based on how many in-app challenges or tasks they complete.

For example, setting up a backup payment method via the app can earn you a $10 credit limit increase, while completing certain personal finance-related lessons can also qualify you for boosts.

A higher credit limit can lower your credit utilization, which could help your credit scores. Other credit cards require you to contact the issuing bank and directly request things like a higher credit limit, and there's no guarantee you'll be granted the favor.

Yearly cost

The Arro Card requires an Arro membership, which has an annual cost: Up to $60.

However, that fee is lower in the first year based on what initial credit line you're approved for:

• $50 credit line: Your Arro membership will be discounted to $12 in Year One (then $60 going forward).

• $100 credit line: You'll pay $24 for an Arro membership in the first year (then $60 going forward).

• $200 credit line: You'll pay $50 for an Arro membership in the first year (then $60 going forward).

In short, the lower your credit line, the lower your cost of holding the Arro Card the first year. The same alternative data — like income — that’s used to determine card approval is also used to determine your credit limit, and generally, those with lower income or less desirable credit data will be approved for lower credit limits, and thus a lower initial membership fee.

But for some people seeking to build credit, any yearly fee might be cost-prohibitive.

» MORE: Annual fees? Several new credit cards are opting for monthly ones

No upgrade path

The best credit cards for those with bad credit or no credit typically offer the opportunity to upgrade or "graduate" to another credit card with better terms and more benefits from the same issuer. The Arro Card does not offer an upgrade path.

While the card can be a good option for those with limited credit, once they’ve built up their credit, they’ll have to hold on to the card (and continue to pay its membership fee) or close the card (which can affect their credit scores).

Alternately, the Discover it® Secured Credit Card — a secured card from a traditional bank — automatically reviews your account after seven months to see whether you're eligible for an upgrade. The card is a good option for those who are new to credit. However, it operates like a conventional secured credit card in that it requires a credit check and a $200 upfront security deposit.

Unlike the Arro Card, the Discover it® Secured Credit Card features a welcome bonus which the card phrases this way: "INTRO OFFER: Unlimited Cashback Match for all new cardmembers—only from Discover. Discover will automatically match all the cash back you’ve earned at the end of your first year! There’s no minimum spending or maximum rewards.". The card’s annual fee is $0.

Limited ongoing rewards

Arro cardholders earn 1% cash back on gas and groceries, including groceries purchased at Walmart and Target. Those are useful categories but paltry rates, even by starter card standards. Plus, rewards are automatically redeemed as statement credit against your monthly balance, which might be welcome news if you value simplicity, but not-so-welcome news if you'd rather have the flexibility to "bank" your rewards for a large purchase down the road.