KOHO Credit Building Review: Is It Worth It?

You may be familiar with KOHO, the prepaid Visa card that integrates with an app for your iPhone or Android device. It’s a reloadable prepaid card that helps you manage your spending with the convenience of a regular credit card. A premium version of KOHO is available for a fee and adds a rewards component and other perks to the program.

But KOHO recently unveiled a new service to its product lineup, called KOHO Credit Building. This article will explain what Credit Building is all about, how much it costs, and how it can help you build or rebuild your credit.

What Is KOHO Credit Building?

You can add KOHO Credit Building as an add-on to your existing KOHO standard or KOHO Premium account. The monthly fee is $7 and the subscription has a 6-month duration. KOHO aims to help you rebuild your credit by reporting regular payments to a major credit bureau. If your credit has been damaged in the past, you understand how challenging it can be to restore your credit score.

How KOHO Credit Building Works

So, how exactly does KOHO help improve your credit score? Here’s how the process works, step-by-step:

1. Sign up for Credit Building as a KOHO app add-on.

2. Upon signup, KOHO will perform a soft credit check to obtain your initial credit score.

3. They deposit dedicated funds that will show on the credit bureau as a line of credit.

4. The dedicated funds are “repaid each month” and reported to the credit bureau.

5. The only deduction you see is the $7 fee for the service.

6. All you need to do is make sure $7 is available each month, $42 total for 6 months.

KOHO Credit Building FAQs

Is KOHO Credit Building available in all Canadian provinces?

As per the KOHO website, Credit Building is available in all Canadian provinces except Saskatchewan.

Will KOHO Credit Building do a hard credit check on my credit bureau?

No. KOHO will run a soft check on your bureau to obtain your initial credit score when you register. However, this soft check has no negative impact on your credit score.

Will missing a monthly payment hurt my credit score?

Yes. Like missing a credit card or loan payment lowers your credit score, so will a missed payment with KOHO Credit Building. That’s why you must always have $7 available in your KOHO Spendable account to cover the monthly repayment.

KOHO Credit Building Pros and Cons

With the Credit Building add-on, KOHO has developed a product to help people build or rebuild their credit. But it can’t help everyone, nor is it a single fix-all for lousy credit. Here’s my list of pros and cons.

Pros

• An inexpensive way to rebuild credit ($7 monthly fee)
• No hard credit check is performed (unlike a regular credit product)
• You don’t need to borrow additional funds (loan, credit card)
• Low effort – everything is done behind the scenes
• Relatively short, 6-month commitment (or longer if you choose)

Cons

• Won’t solve poor money management
• Limited impact on credit bureaus – you’ll need to do more
• Won’t help those with outstanding delinquent credit

KOHO Credit Building Alternatives

KOHO can help you raise your credit score, but you might need to do more depending on your situation. If you can’t qualify for an unsecured credit card or loan, you might want to consider a secured credit card or an RRSP loan.

Secured Visa or Mastercard

Like the Capital One credit card, many banks and credit card companies offer secured credit cards. The borrower deposits a fixed sum of money, say $500, which the lender restrains in a savings account or term deposit. They then issue a credit card with a credit limit equal to the security amount. The borrower can use the card for their day-to-day spending, paying off the balance in full or making the minimum payment each month.

If the borrower defaults on the credit card payments, the lender simply recovers the unpaid funds from the secured deposit. It’s a no-risk scenario for the lender, which is why they are willing to grant the credit in the first place.

RRSP Loan

Some financial institutions will grant an RRSP loan to borrowers with no credit or poor credit history. Funds from an RRSP loan are deposited into a Registered Retirement Savings Plan in the borrower’s name. RRSP loans are available for as little as $500, with favourable interest rates and repayment conditions. The risk to the lender is low because the funds are restrained in the RRSP until the loan is paid in full, and the loan amounts are generally very small. The loan payments are reported to the credit bureaus, boosting the borrower’s credit score.

Other Products by KOHO

In addition to credit building by KOHO, you can do most of your day-to-day banking with their prepaid credit card. Below is a list of benefits you receive when you open a KOHO Standard or Premium account. Credit Building is available as an add-on with both KOHO prepaid credit card plans. For more information, check out my full KOHO review here:

KOHO Features

• No annual fee
• 0.5% cashback on all purchases
• A foreign exchange fee of 1.5%
• Round up savings including the tracking of savings goals
• Compatibility with ApplePay and Samsung Pay
• Financial tips and insights

KOHO Premium Features

• 30-day free trial
• $9/month or $84/year
• 2% cashback on grocery, dining out, and transportation purchases
• Foreign exchange fees waived
• 1 Free International ATM withdrawal per month
• Free financial coaching
• Price Matching

Is KOHO Credit Building an Effective Way to Build Credit?

The bottom line is that while the KOHO Credit Builder can be a helpful credit-building tool, it should not be considered a single fix-all solution to repair a bad credit report.

If you’ve never had credit and you can benefit from having multiple trades reporting to the bureau, it may help boost your score more quickly. Or, if you no longer have active credit and you cannot qualify for a credit card or loan due to a low credit score, KOHO’s credit-building tool might be a good starting point on the road to credit recovery.

On the other hand, if you have outstanding trades that you continue to miss payments on, signing up with KOHO isn’t going to move the dial; it’s not worth the $7 monthly investment because you have bigger issues to tackle first.