Amazon’s latest credit card is designed to appeal to consumers looking to improve their credit score. It comes with an unusual structure – and a few major caveats.
the Amazon Credit Builder Card
will work like a secure credit card, but with the same benefits as Amazon’s Store Card. When opening the card, as with any secure card, the consumer must make a refundable security deposit with Amazon’s partner on the financial product, Synchrony Bank SYF,
This deposit will then represent the credit limit of the card. Consumers can establish lines of credit ranging from a minimum of $ 100 to a maximum of $ 1,000.
Like many other retail cards, however, the Amazon Credit Build card can only be used for purchases on Amazon, making it a “closed loop” card.
The structure of the new credit offering seemed rather unusual to credit card experts. “I have reviewed hundreds of retail cards and can’t recall ever seeing a secure retail card,” said Ted Rossman, industry analyst at CreditCards.com.
(Amazon and Synchrony declined to provide additional comments regarding the card on file.)
Read more:How next day shipping from Amazon and Walmart could blow your budget
Here are the other features of the card:
• Amazon Prime members who open the card can receive 5% cashback on their purchases on Amazon.com. Account must be in good standing to redeem rewards.
• The card has no annual fee – although consumers would have to pay the annual Amazon Prime membership fee of $ 119 to get the cash reward.
• After making the account opening deposit, cardholders will receive a $ 40 gift card.
• Cardholders will have access to 0% APR financing options on large purchases.
• On-time payments will be reported to the three major credit bureaus: Experian EXPN,
, Equifax EFX,
and TransUnion TRU,
• The card’s annual percentage rate is currently 28.24% and resets to the prime rate. This is higher than the average retail card interest, which was 25.64% in November 2018, according to CreditCards.com.
Amazon seeks to appeal to low-income consumers
This card is clearly aimed at a different audience than the company’s other credit cards, including Amazon Prime Rewards Visa V,
, which was released last year.
The Amazon Credit Builder card is explicitly aimed at people with bad credit and those new to credit. Amazon has also partnered with TransUnion create a dashboard through which consumers can monitor their credit rating and learn how to use their credit card wisely.
“Secured credit cards are my go-to cards for people who are starting to credit or rebuilding it,” said Matt Schulz, chief industry analyst at CompareCards.com. “It’s a great training wheel map because there is so little risk involved. After all, with typical $ 200 or $ 250 lines of credit, there is only so much madness that you can go with your spending.
But Schulz warned that because the Credit Builder is a retail card, there are some significant potential pitfalls that consumers should be aware of, including an above-average APR and rewards that may not be as good as those offered. by general purpose cards. .
Consumers will have the option to upgrade to the Amazon Store card if their account remains in good standing. However, not all consumers should necessarily make this move.
“Upgrading the card means getting your security deposit back, so that’s a good thing,” said Greg McBride, chief financial analyst at Bankrate. “But at the end of the day, whether a card is secure or not, it is how disciplined the cardholder is with their spending and the refund of the balance that determines whether a point succeeds or fails. from a financial point of view. “
Also see:Here’s everything Apple doesn’t tell you about its new credit card
To qualify for the upgrade, cardholders must make seven consecutive payments on time over a 12-month period. Cardholders should also have a credit history without bankruptcy, foreclosure or recent delinquency and a credit rating that meets Synchrony criteria.
The decision to offer this card is part of other efforts by Amazon to attract low-income consumers, including when the company began charging a lower membership rate than Amazon Prime for consumers who depend on it. government assistance.
“It sets the bad precedent for using a credit card to fund purchases that cannot be paid for in full.”
Card benefits may be too good to be true
Many benefits designed to help this card stand out from other secured credit cards could turn into double-edged swords.
For starters, Amazon’s choice to offer rewards on the card could easily backfire on consumers. Credit card rewards, however, are almost inherently designed to encourage overspending. Financial experts argue that offering these rewards in turn could foster bad spending habits and make it harder for consumers to build up their credit scores.
Plus, special financing offers could end up costing consumers dearly if they’re not careful. Amazon Credit Builder cardholders will have access to two forms of special funding. For purchases of $ 149 or more, they can request 0% financing for 6-24 months.
Consumers can also request “equal pay financing” for purchases of $ 300 or more, for which they will make equal payments each month for one year at 0% APR.
Don’t miss:Ask these questions about your credit card – it could save you hundreds of dollars
Both of these supposed agreements have drawbacks. Namely, if consumers do not pay the full balance on time, they will be forced to pay interest on the full amount of the purchase. And with the offer of equal payments, missing a payment could hurt a buyer’s credit rating.
“More and more cards and card issuers are offering the ability to segregate specific large purchases for special funding arrangements in the hope that the cardholder will continue to use the card while paying off that large purchase instead. than putting it in a drawer until it’s paid, “McBride said.” The risk for those new to credit or rebuilding credit is that it sets the bad precedent of using a credit card. credit to finance purchases which cannot be paid in full. “
The card’s high interest rate should also be a major concern for consumers – and can be avoided if they pay off the balance in full each month. But that might prove difficult for someone on a tight budget.
Finally, due to its unique structure, the Amazon Credit Builder card comes with one of the main caveats of most retail cards: Consumers cannot use it elsewhere. This makes it potentially less useful than other secure credit cards offered by banks, such as the Discover it Secured DFS card,
and Citi Secured Mastercard C,
, which can be used at any number of retailers.
Consumers should approach any retail card with caution, Schulz said, because people often feel pressured to sign up and then regret having done so. In fact, a 2018 survey by CompareCards found that 47% of people who got store cards were sorry they did. “If you’re interested in a card, your best bet is to say no when it’s offered to you and then read the card once. You get home,” Schulz said. “If you’re still interested, go- y and apply next time you’re at that store Chances are the same benefits and details still apply, but you’ll make a less pressurized and more informed decision.
Amazon shares have risen 11.3% in the past three months. Comparatively, the Dow Jones Industrial Average DJIA,
and S&P 500 SPX,
only increased by 2.1% and 4.75% respectively over the same period.