Upgrade Card review

By combining the fixed payments of a loan with the convenience of a card, Upgrade Card is taking a new approach to paying with credit.

While credit cards regularly offer new perks, rewards and redemption options, they all work in basically the same way. You spend money each month, up to a pre-approved credit limit, and then have the option to pay back the balance over time understanding that you'll pay interest on the amount you don't pay back right away. It's not often that we come across a card that works differently.

However, the Upgrade Card is upending that formula. Rather than offering a traditional credit limit, it provides customers with a line of credit designed to make paying off your balance more predictable and even help your credit score thanks to the way the debt is reported to credit bureaus.

Plus, the Upgrade Card sets itself apart from the competition in other ways:

• No fees of any kind
• Available to those with a record of bankruptcy or with a credit score as low as 600, depending on factors such as income and credit history
• Option to transfer money directly to a bank account without incurring a cash advance fee

HOW DOES THE UPGRADE CARD WORK?

On the surface, Upgrade Card works the same as any other credit card. Cardholders receive a personal line of credit that can range anywhere from $500 to $50,000 depending on creditworthiness. That credit can be used online or in stores, wherever Visa is accepted. Money from the line of credit can also be withdrawn directly into a bank account.

Where Upgrade Card differs from traditional credit cards is that at the end of each month, the card combines all your purchases into a single personal loan that has a fixed-rate and a fixed term. That means if you spend $1,000 in a single month, you'll be assigned a payment that allows you to pay off that debt in two, three or more years. This arrangement gives you a predictable payment amount and the assurance that you won't be paying off your debt for decades or accruing unpredictable amounts of interest as can happen when making minimum payments on a traditional credit card.

Each month, the terms of a new personal loan for that month's purchases and withdraws will be calculated. That monthly payment will then be added to the payments from previous months. There is no penalty for early payoff, and any additional payments made above the monthly minimum will be applied on a pro-rata basis to the outstanding balances.

WHAT IS A CREDIT LINE?

Upgrade Card offers customers a line of credit which is slightly different than the traditional spending limit found on credit cards. The credit line is essentially a pre-approved loan from Upgrade Card that you can access whenever you want.

In practice, a credit line works the same as a traditional limit issued by a credit card, but it is quite different when it comes to credit bureau reporting. Upgrade Card reports its line of credit more similar to a personal loan than a revolving credit card account.

As a result, the balance on your Upgrade Card doesn't get counted toward your debt utilization ratio, a significant factor in determining your credit score. This ratio refers to what percentage of available credit a person is using. A higher percentage can negatively impact someone's credit score. For someone who is trying to improve their score, a credit line from Upgrade Card could be more beneficial than using a traditional credit card. Given recent changes to how FICO is calculating scores– that is, taking a longer view of your payment history and credit utilization over time rather than in a one to two-month snapshot– the fact that the Upgrade Card line of credit doesn't affect your credit utilization could be quite important.

HOW TO SAVE WITH THE UPGRADE CARD

The fixed payments offered by Upgrade Card can save thousands of dollars and shave years off a debt repayment schedule.

For example, an Upgrade Card customer who pays off a $10,000 balance with a plan that charges an 18% APR over a 24-month loan term would make fixed monthly payments of $504.29 and spend $2,102.71 in interest in the process. However, making minimum payments (assuming interest plus 1% of the principal to find your minimum payment due) on a $10,000 credit card balance at the interest rate of 18% could mean you pay $14,423.16 in interest and don't pay off the balance for more than 28 years.

As a side note, this is an excellent illustration of why making the minimum payment on a credit card balance can doom you to years and years of debt. Also, keep in mind that, in addition to saving you a ton in interest charges, the Upgrade Card line of credit balance won't count against your credit utilization ratio during the two years you're paying off that loan. Twenty-eight years is a long time to have such a chunk of debt raising your ratio should you go the traditional credit card route.

Upgrade Card also saves money by eliminating many of the fees you might find with some credit cards. There are no balance transfer fees, foreign transaction fees or annual fees.

POTENTIAL DOWNSIDES OF THE UPGRADE CARD

Although the Upgrade Card can be a good choice for many people, it does have some downsides.

While money from a credit line can be transferred to a bank account, it can't be accessed from an ATM. That eliminates the possibility of instant access to cash from your credit line although that could be a benefit in deterring some impulse spending and it means you don't have to think about cash advance fees.

Another drawback to the Upgrade Card is that it doesn't appear to be widely available to those with no credit history. While the card is available to those with low credit scores or bankruptcy on their record, young adults and others managing their money for the first time will need to look elsewhere to establish their credit.

Finally, Upgrade Card doesn't offer any rewards at this time; however, the card has announced plans to add a rewards program in the near future that will reward cardholders when they pay off their balances rather than when they make purchases, setting up a nice incentive to stick to your payment plan. Once rewards launch on this card, it will be all that much stronger of a card option.

HOW DOES THE UPGRADE CARD COMPARE TO OTHER CARDS FOR FAIR CREDIT?

Upgrade Card vs. Capital One® QuicksilverOne® Cash Rewards Credit Card

(This card is not currently available on CardRatings)

Both the Upgrade Card and Capital One® QuicksilverOne® Cash Rewards Credit Card can be used to build credit, but there are notable differences between these two options.

For starters, you'll pay a $39 annual fee for the QuicksilverOne® card while there is no annual fee for the Upgrade Card. However, in exchange for that fee, Capital One cardholders get 1.5% cash back on all their purchases. As of right now, Upgrade Card doesn't offer any rewards, but that is expected to change.

In terms of interest, the default rate for the QuicksilverOne® card is 26.99% (Variable). Interest rates on the Upgrade Card currently range from 6.99% -29.99% Fixed, which could lead to significant interest savings if you qualify for the lower end of that spectrum..

Upgrade Card vs. Deserve Pro

(This card is not currently available on CardRatings)

You won't have to pay an annual fee or foreign transaction fees with either the Upgrade Card or the Deserve Pro. However, the Deserve Pro card comes with a number of perks not available on the Upgrade Card.

Deserve Pro users receive cash back on all their purchases - 3% on travel and entertainment, 2% at restaurants and 1% on everything else. They also get a host of added benefits such as up to $600 in cell phone insurance, roadside assistance, extended warranty protection and car rental collision damage waiver. Deserve Pro also gives cardholders a Priority Pass™ Select Membership for airport lounge access after making $1,000 worth of purchases in 90 days.

While the Upgrade Card doesn't offer those benefits, it may extend a credit line that is as much as $50,000. Meanwhile, the credit limit extended by the Deserve Pro card tops out at $10,000 to start. Upgrade Card may also have an advantage when it comes to interest. Its interest rate can drop really low (6.99% -29.99% Fixed) while the Deserve Pro has an APR of 17.49% to 24.49% Variable.

Upgrade Card vs. Capital One® Platinum Credit Card

(This card is not currently available on CardRatings)

The Upgrade Card and Capital One® Platinum Credit Card have a few similar features.

Neither card charges an annual fee, and neither offers a rewards program. However, you will pay a late fee on late payments with the Capital One® Platinum, and there is a cash advance fee for the card as well. With the Upgrade Card, there is no fee to withdraw cash from your credit line to your bank account.

If you're choosing between the two cards, interest may be the biggest factor to consider. The Upgrade Card will charge you from 6.99% -29.99% in interest but provides a fixed payback period that limits how much you pay overall. However, the default rate on the Capital One Platinum Mastercard is 26.99% (Variable) and may be paid off over a longer period and at a greater expense if only minimum payments are made.