Building credit is hard when it’s hard to even get credit.
And while it’s not impossible to get loans or credit cards, they are often offered at high interest rates to those who can least afford them.
An Austin-based startup is willing to help people build, or obtain, credit without going into debt. And that start up, stellarfiit just closed a $15 million Series A funding round to help it further that goal.
Lamine Zarrad started StellarFi in 2021 after selling another fintech company he had started, banking app Joust, to ZenBusiness in 2020. Having faced his own difficulties getting credit as an immigrant, Zarrad was looking for a way to help others get access to credit.
He started StellarFi on the premise that people should be able to see benefits to their credit scores simply by doing everyday things like paying rent and bills on time. It does this by charging a subscription, either $4.99 or $9.99, to manage member bills and recurring payments like rent, subscriptions, and utilities. Their goal is not just to help consolidate payments, but to help ensure that members pay on time. StellarFi then reports those on-time payments directly to the four major credit bureaus: Experian, Equifax, TransUnion, and Innovis.
The company does not require a credit check or deposits and does not charge any interest. He claims that members see an average increase of 26 points in the first month. The average credit score of users upon signing up is 580.
As a public benefit corporation, StellarFi’s mission is to help “financially disadvantaged” communities with support to build good credit. With its new capital, the company intends to build a marketplace to then link members with lenders.
Since launching its offering at the end of June, the company’s growth has exceeded expectations, according to Zarrad. StellarFi closed out the year with over $2 million in annual recurring revenue (ARR), roughly double what it was projecting.
“In 134 days, we hit $1 million in ARR,” he told TechCrunch. “I’ve built a unicorn before, but I’ve never seen this kind of growth.”
While Zarrad would not disclose the company’s new valuation after its latest increase, he did share that it was a significant “round of bullishness.” In total, StellarFi has raised $22.2 million in funding. Repeat backer Acrew Capital led its Series A, which included participation from Trust Ventures, ATX Venture Partners, Dream Ventures, Interplay, Accomplice Ventures, Vera Equity, FJ Labs, Fiat Ventures, Gaingels, Kelmhurst, Oyster Funds, Hilltop Ventures, Permit Ventures, Kindergarten Ventures, J2 Capital, Socially Financed and Kapital Ventures.
“All the initial investors participated in this round,” Zarrad said. “And we added new ones. Everyone is energized.”
StellarFi was slated to close $5 million in Signature Bank risk debt for the track extension, a deal that fell through once the institution was forced out of business earlier this month. He still plans to insure another institution’s debt.
Last September, Experian, perhaps in response to the growing number of fintechs tackling this issue, launched a new product called Experian Boost that, in their own words, allows people to “get credit” for paying their rent on time. According to Zarrad, Experian Boost allows users to link their bank accounts through Finicity, then automatically identifies certain recurring bills, such as utilities and rent, and pulls that data into its internal model designed to show alternative payment behaviors. This model resides only at Experian, Zarrad notes, as TransUnion, Equifax, or Innovis don’t have access to it.
“More importantly, lenders don’t use it in credit decisions,” he added. Rather, as mentioned above, StellarFi functions as a bill payment manager to help members continue to make on-time payments and reports payments to all four credit bureaus to impact all credit scoring models.
“Unlike Boost, StellarFi does not report payment history derived from linked bank accounts. Instead, StellarFi actually pays the bills and then members pay us back,” Zarrad told TechCrunch. “So we can create a credit relationship that we report to all the consumer reporting agencies that lenders use. In other words, our members are covered no matter what credit report their lenders pull.”
The company has added affiliate partners and is investing in SEO and is seeing even faster growth this year, according to Zarrad.
“We have signed contracts with neobanks and other fintechs are sending us their clients,” he said. “We are still onboarding lenders and financial institutions.”
StellarFi has put a lot of eggs in the affiliate basket, Zarrad said, because he believes it builds trust and that conversions “are much higher” compared to “connecting and buying people on social media.”
The company intends to develop more features and is still developing its mobile app.
“Our next goal is to completely conquer the mobile experience,” he said. “Once this is done, members can not only get better credit, but also access to capital. We want to help them get that money through partners.”
Surprisingly, so far, Zarrad said StellarFi has had “zero breaches” but has seen tons of fraud. “But we have created sophisticated algorithms to detect it in advance and quarantine the scammers.”
Acrew Capital’s John Gardner said his firm first invested in StellarFi at an early stage because he “had strong belief” in the ability of Zarrad and his team “to scale another fintech business, given their success in building Joust”.
“Stellar’s approach is exciting because it meets consumers where they are: their internet bills. We believe this form factor is much easier for users to understand and relate to, helping them see rapid and persistent increases in their credit score in a fairly short period of time. Stellar also reports on a broader set of FICO models, which means the score benefit applies to larger loans, like cars or mortgages,” he wrote via email. “When it came time for Serie A, it became apparent that the Stellar team could execute their plans with maniacal focus. They demonstrably improved member credit scores within 30 days, scaled to over $1M in ARR within months of launch, and established unique distribution partnerships to efficiently reach the right audiences. For consumer fintechs, we are very excited about these growth characteristics, particularly when there is a clear line of sight to profitability.”
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