Constructing credit score is difficult when it’s troublesome to even get credit score.
And whereas it’s not inconceivable to get loans or bank cards, they’re often provided at excessive rates of interest to the individuals who can least afford to pay them.
One Austin-based startup is out to assist folks construct — or get — credit score with out taking up debt. And that startup, StellarFi, has simply closed on a $15 million Collection A spherical of funding to assist it advance on that objective.
Lamine Zarrad began StellarFi in 2021 after promoting one other fintech firm he’d began, banking app Joust, to ZenBusiness in 2020. Having confronted his personal struggles receiving credit score as an immigrant, Zarrad was searching for a means to assist others acquire entry to credit score.
He began StellarFi on the premise that folks ought to have the ability to see advantages to their credit score scores simply by doing on a regular basis issues comparable to paying hire and payments on time. It does this by charging a subscription — both $4.99 or $9.99 — to handle members’ payments and recurring funds comparable to hire, subscriptions and utilities. Its objective isn’t solely to assist consolidate the funds, however to assist guarantee members pay on time. StellarFi then reviews these on-time funds on to the 4 primary credit score bureaus — Experian, Equifax, TransUnion and Innovis.
The corporate doesn’t require a credit score examine or deposits and doesn’t cost any curiosity. It claims that members see a mean improve of 26 factors within the first month. The common credit score rating of customers at signup is 580.
As a public profit company, StellarFi’s mission is to assist “financially deprived” communities with assist to construct good credit score. With its new capital, the corporate intends to construct a market to then hyperlink members to lenders.
Since launching its providing in late June, the corporate’s development has exceeded expectations, in response to Zarrad. StellarFi closed out the 12 months with over $2 million in annual recurring income (ARR) — about double what it was projecting.
“In 134 days, we had hit $1 million in ARR,” he instructed TechCrunch. “I’ve constructed a unicorn earlier than, however by no means seen this sort of development.”
Whereas Zarrad didn’t disclose the corporate’s new valuation after its newest elevate, he shared that it was a major “up spherical.” In whole, StellarFi has raised $22.2 million in funding. Repeat backer Acrew Capital led its Collection A, which included participation from Belief Ventures, ATX Enterprise Companions, Dream Ventures, Interaction, Confederate Ventures, Vera Fairness, FJ Labs, Fiat Ventures, Gaingels, Kelmhurst, Oyster Funds, Hilltop Ventures, Allow Ventures, Kindergarten Ventures, J2 Capital, Socially Financed and Kapital Ventures.
“Each single seed investor participated on this spherical,” Zarrad mentioned. “And we added new ones. Everyone seems to be energized.”
StellarFi was set to shut on $5 million in enterprise debt from Signature Financial institution for runway extension — a deal that fell by means of as soon as that establishment was compelled to shutter earlier this month. It plans to nonetheless safe debt from one other establishment.
Final September, Experian — maybe in response to the rising variety of fintechs tackling this downside — launched a brand new product referred to as Experian Enhance that, in its personal phrases, lets folks “get credit score” for paying their hire on time. In keeping with Zarrad, Experian Enhance permits customers to hyperlink their financial institution accounts by way of Finicity, then robotically identifies sure recurring payments like utilities and hire and extracts that knowledge into their inner mannequin designed to showcase different cost behaviors. This mannequin resides solely at Experian, Zarrad factors out, as TransUnion, Equifax or Innovis don’t have entry to it.
“Extra importantly, it’s not utilized by lenders in credit score choices,” he added. Against this, as talked about above, StellarFi operates as a bill-pay supervisor to assist members proceed to make on-time funds, and reviews funds to all 4 credit score bureaus, to affect all credit score rating fashions.
“In contrast to Enhance, StellarFi doesn’t report cost historical past derived from linked financial institution accounts. As a substitute, StellarFi really pays the payments after which members pay us again,” Zarrad instructed TechCrunch. “Due to this fact, we’re in a position to create a credit score relationship that we report back to all bureaus that generate client reviews utilized by lenders. In different phrases, our members are lined, irrespective of which credit score report their lenders pull.”
The corporate has added affiliate companions and is investing in search engine optimization and is seeing even quicker development this 12 months, in response to Zarrad.
“We’ve signed contracts with neobanks and different fintechs are sending us their prospects,” he mentioned. “We’re nonetheless onboarding lenders and monetary establishments.”
StellarFi has put numerous eggs into the affiliate basket, Zarrad mentioned, as a result of he believes it creates belief and that conversions “are a lot greater” versus “going surfing and shopping for of us on social media.”
The corporate intends to construct out extra options and continues to be creating its cell app.
“Our subsequent objective is to beat the cell expertise utterly,” he mentioned. “As soon as that’s completed, members cannot solely get higher credit score, but in addition entry to capital. We need to assist them get that cash by means of companions.”
Surprisingly to date, Zarrad mentioned that StellarFi has had “zero defaults” however has seen tons of fraud. “However we’ve constructed subtle algorithms to catch it upfront and quarantined tried fraudsters.”
John Gardner of Acrew Capital mentioned his agency first invested in StellarFi on the seed stage as a result of it “held robust conviction” in Zarrad and his workforce’s potential “to scale one other fintech enterprise, contemplating their success constructing Joust.”
“Stellar’s strategy is thrilling as a result of it meets shoppers the place they’re – web payments. We expect this type issue is way simpler for customers to know and hyperlink, serving to them see fast and protracted boosts to their credit score rating in a reasonably quick time-frame. Stellar additionally reviews right into a broader set of FICO fashions, which means the rating profit is relevant to heftier loans, like auto or mortgage,” he wrote by way of e-mail. “When it got here time for the Collection A, it grew to become readily obvious that Stellar’s workforce might execute on their plans with a maniacal focus. They demonstrably improved credit score scores inside 30 days for members, scaled to over $1mm in ARR inside a couple of months of launch and arrange distinctive distribution partnerships to effectively attain the correct audiences. For client fintech, we get actually excited by these development traits, notably when there’s a clear line of sight to profitability.”
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