Is Step a Credit Card? How It Builds Credit
Explore Step: a financial tool designed to help you build credit and manage money effectively, offering an alternative to traditional credit cards.
Step is not a traditional credit card. It functions as a financial platform offering a secured spending card that allows users to manage their money while simultaneously establishing a credit history. This platform is designed to provide financial tools for younger generations.
Understanding Step
Step operates as a comprehensive banking platform tailored for teens and young adults. Users receive a Visa spending card directly linked to a deposit account, which is FDIC-insured through Step’s banking partner, Evolve Bank & Trust. Funds can be added to the account through various methods, including direct deposit, external bank transfers, or cash deposits at designated retail locations.
The core functionality of the Step card revolves around spending only the money available in the linked account. This means users cannot overspend or incur debt, as transactions are approved solely if sufficient funds exist. The platform also includes a mobile app for managing the account, tracking spending, and facilitating money transfers, providing a modern banking experience.
How Step Helps Build Credit
Step facilitates credit building through a unique secured spending model. The funds held within a user’s Step account serve as collateral for their spending, similar to how a security deposit works with a secured credit card. Each on-time payment made using the Step card is tracked and reported.
Step reports this positive payment history to the three major credit bureaus: Experian, Equifax, and TransUnion. For users under 18, Step can report up to two years of payment history once they reach adulthood and verify their account.
Key Differences from Traditional Credit Cards
A traditional credit card provides a revolving line of credit, allowing users to borrow money up to a set limit, which must then be repaid, often with interest. In contrast, the Step card does not offer a credit line; users can only spend the money they have already deposited into their account.
Consequently, there are no interest charges associated with Step spending, nor is it possible to carry a balance or accumulate debt. Traditional credit cards can involve annual fees, interest on outstanding balances, and potential overdraft fees, whereas Step aims to avoid these charges. With Step, the financial mechanism involves spending one’s own funds, rather than borrowing from a lender.
Who Benefits from Using Step
Step is particularly beneficial for individuals new to managing finances and building a credit history. This includes teens and young adults who may not qualify for traditional credit cards due to a lack of prior credit experience. It offers a low-risk environment to learn about responsible spending and the mechanics of credit reporting without the dangers of accumulating debt or incurring high interest rates.
The platform also supports parents seeking to instill financial literacy in their children by providing tools for oversight and guidance. Step promotes responsible financial habits, such as budgeting and timely payments, which are foundational for a healthy financial future.