KOHO is a fintech company based in Canada that offers a variety of financial services through its app. Among its features, the credit building tool stands out as a premium feature aimed at improving users’ credit histories. Priced at $10 per month, this feature has been praised by many users for its effectiveness in enhancing credit scores over time.

Since its introduction, KOHO’s credit building feature has garnered attention and feedback from users, many of whom have reported significant improvements in their credit scores. If you’re contemplating using this service, it’s essential to understand how it works and its potential impact on your financial health.

Pros of KOHO’s Credit Building

• Debt-safe credit history building: KOHO’s feature allows users to build credit history without the risk of accumulating debt.
• Credit utilization reporting: Proper credit utilization is reported to credit bureaus, which can improve your credit score.
• Interest on all money: Users earn interest on their balances, adding another financial benefit.
• Credit score improvements: Many users report increases of 20 to 100 points within six to nine months.

The Big Drawbacks of KOHO

While KOHO has its merits, two significant limitations could impact your decision to switch from a traditional bank account to KOHO.

1. Limited Acceptance of Prepaid Cards

One of the most significant drawbacks of KOHO is that its cards are prepaid Visa cards. Many retailers, both online and offline, do not accept prepaid cards due to their association with fraud. This can be a major inconvenience if you rely on your KOHO card for everyday purchases. For instance, companies like PayPal and Hostel World do not accept prepaid Visa cards, which can limit your purchasing options.

Although major Canadian retailers like Loblaws, Superstore, and Shoppers Drug Mart do accept prepaid Visa cards, it’s essential to verify whether your preferred merchants do the same. This lack of universal acceptance might be a deal-breaker if you need a card that’s widely accepted.

2. Inability to Receive E-Transfers from Friends

Another significant limitation is KOHO’s current inability to accept e-transfers from friends. In Canada, e-transfers are a common way to send money between friends and family. Unfortunately, KOHO’s system requires that e-transfers originate from a bank account that matches the account holder’s name, preventing friends or family from sending money directly to your KOHO account.

This can be a major inconvenience in social situations where splitting bills or reimbursing friends is common. While KOHO allows you to send e-transfers from your account, the inability to receive them from others is a significant limitation for many users.

How KOHO’s Credit Building Works

The credit building process with KOHO begins with a line of credit being opened on your behalf, although you don’t have direct access to this credit. Instead, you choose a portion of this credit line to utilize each month. It’s generally advised to use less than 30% of your available credit, but even 5% or 10% is sufficient.

Once you’ve set your credit utilization, KOHO manages the rest. They make monthly payments on your line of credit and report these activities to credit bureaus, showcasing your ability to manage credit responsibly. This reporting is crucial as it demonstrates both your credit availability and reliability in making repayments.

Optimizing Your Credit Score

To maximize the benefits of KOHO’s credit building, it’s important to address any outstanding financial issues that might be affecting your credit score. This includes paying off overdue bills and managing debt responsibly.

Additionally, using credit monitoring services like TransUnion can provide insights into your credit status and help you identify areas for improvement. While such services might come with a fee, they offer valuable information that can aid in making informed financial decisions.