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Building credit is hard when it’s difficult to even get credit.

And while it’s not impossible to get loans or credit cards, they are usually offered at high interest rates to the people who can least afford to pay them.

One Austin-based startup is out to help people build — or get — credit without taking on debt. And that startup, StellarFi, has just closed on a $15 million Series A round of funding to help it advance on that goal.

Lamine Zarrad started StellarFi in 2021 after selling another fintech company he’d started, banking app Joust, to ZenBusiness in 2020. Having faced his own struggles receiving credit as an immigrant, Zarrad was looking for a way to help others gain access to credit. 

He started StellarFi on the premise that people should be able to see benefits to their credit scores just by doing everyday things such as paying rent and bills on time. It does this by charging a subscription — either $4.99 or $9.99 — to manage members’ bills and recurring payments such as rent, subscriptions and utilities. Its goal is not only to help consolidate the payments, but to help ensure members pay on time. StellarFi then reports those on-time payments directly to the four main credit bureaus — Experian, Equifax, TransUnion and Innovis.

The company does not require a credit check or deposits and doesn’t charge any interest. It claims that members see an average increase of 26 points in the first month. The average credit score of users at signup 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 to lenders.

Since launching its offering in late 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) — about double what it was projecting.

In 134 days, we had hit $1 million in ARR,” he told TechCrunch. “I’ve built a unicorn before, but never seen this kind of growth.”

While Zarrad did not disclose the company’s new valuation after its latest raise, he shared that it was a significant “up round.” 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. 

“Every single seed investor participated in this round,” Zarrad said. “And we added new ones. Everyone is energized.”

StellarFi was set to close on $5 million in venture debt from Signature Bank for runway extension — a deal that fell through once that institution was forced to shutter earlier this month. It plans to still secure debt from another institution.  

Last September, Experian — perhaps in response to the increasing number of fintechs tackling this problem — released a new product called Experian Boost that, in its own words, lets people “get credit” for paying their rent on time. According to Zarrad, Experian Boost allows users to link their bank accounts via Finicity, then automatically identifies certain recurring bills like utilities and rent and extracts that data into their internal model designed to showcase alternative payment behaviors. This model resides only at Experian, Zarrad points out, as TransUnion, Equifax or Innovis don’t have access to it.

“More importantly, it’s not used by lenders in credit decisions,” he added. By contrast, as mentioned above, StellarFi operates as a bill-pay manager to help members continue to make on-time payments, and reports payments to all four credit bureaus, to impact all credit score 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. “Therefore, we’re able to create a credit relationship that we report to all bureaus that generate consumer reports used by lenders. In other words, our members are covered, no matter which 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’ve signed contracts with neobanks and other fintechs are sending us their customers,” he said. “We’re still onboarding lenders and financial institutions.” 

StellarFi has put a lot of eggs into the affiliate basket, Zarrad said, because he believes it creates trust and that conversions “are much higher” versus “going online and buying folks on social media.”

The company intends to build out more features and is still developing its mobile app.

“Our next goal is to conquer the mobile experience completely,” he said. “Once that’s done, members can not only get better credit, but also access to capital. We want to help them get that money through partners.”

Surprisingly thus far, Zarrad said that StellarFi has had “zero defaults” but has seen tons of fraud. “But we’ve built sophisticated algorithms to catch it upfront and quarantined attempted fraudsters.”

John Gardner of Acrew Capital said his firm first invested in StellarFi at the seed stage because it “held strong conviction” in Zarrad and his team’s ability “to scale another fintech business, considering their success building Joust.”

“Stellar’s approach is exciting because it meets consumers where they are – internet bills. We think this form factor is much easier for users to understand and link, helping them see quick and persistent boosts to their credit score in a fairly short time frame. Stellar also reports into a broader set of FICO models, meaning the score benefit is applicable to heftier loans, like auto or mortgage,” he wrote via email. “When it came time for the Series A, it became readily apparent that Stellar’s team could execute on their plans with a maniacal focus. They demonstrably improved credit scores within 30 days for members, scaled to over $1mm in ARR within a few months of launch and set up unique distribution partnerships to efficiently reach the right audiences. For consumer fintech, we get really excited by these growth characteristics, particularly when there is a clear line of sight to profitability.”

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StellarFi lands $15M to help people build credit by paying bills, rent on time by Mary Ann Azevedo originally published on TechCrunch

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