Credit Builder Card

A credit builder card is a type of credit card issued by a bank or credit union, typically marketed to consumers who have a limited credit history or no credit file at all. Unlike standard credit cards that often require a good credit score for approval, credit builder cards may use alternative underwriting criteria, such as income or a security deposit. Many credit builder cards are secured, meaning the cardholder provides a cash deposit that serves as the credit limit. Others are unsecured but come with low credit limits and high fees. The term "credit builder" is a marketing label, not a legal or regulatory category, so the features of these cards vary widely among issuers. When a credit builder card is used, the issuing bank may report account activity to one or more of the national credit reporting companies. This reporting typically includes the account's opening date, credit limit, balance, and payment history. The cardholder's payment behavior, such as whether payments are made on time, is recorded in the credit file. The card functions like any other credit card for purchases, but the cardholder may be required to pay a deposit upfront. Some credit builder cards charge an annual fee, a monthly maintenance fee, or both. Interest rates on these cards can be higher than those on traditional credit cards. Credit builder cards differ from other financial products that may be marketed for similar purposes, such as credit builder loans or secured credit cards. A credit builder loan is an installment loan where the borrowed funds are held in a savings account until the loan is repaid. A secured credit card is a type of credit card that requires a deposit, and it may or may not be marketed as a credit builder card. The key distinction is that a credit builder card is a revolving credit account, while a credit builder loan is an installment account. Both types of accounts may be reported to credit reporting companies, and both may appear on a credit report as tradelines. Because credit builder cards are reported to credit reporting companies, the information in the credit file may be used by scoring models. However, not all credit builder cards report to all three national credit reporting companies; some report only to one or two. Additionally, some issuers may only report negative information, such as late payments, while others report all activity. Consumers can obtain free credit reports from annualcreditreport.com to review the information in their files. It is also possible to dispute inaccurate information in a credit report with the credit reporting company and the furnisher of the information. The presence of a credit builder card tradeline does not guarantee any particular outcome for a credit file or credit score.

A consumer with no credit history might apply for a credit builder card that requires a security deposit and reports to one national credit reporting company.