Credit builder accounts (CBAs), also known as credit builder tradelines, are distinct registries maintained by lenders that record transactions from other credit builder products within a lender's database. Credit builder accounts can also refer to collateral accounts used on credit builder products, including loans and cards.
These accounts are reported to the credit bureaus (TransUnion, Equifax & Experian) and are used as input for credit report and score. They are therefore essential to understand for consumers building their credit because a credit builder product may seem enticing, yet not report to bureaus.
The contents of CBAs include borrower name(s) and social security numbers used for identification, but the SSN does not usually appear.
They also include (but are not limited to) lender name and address, account number, date
opened, account responsibility, account type, loan type, current balance, date last
updated, last payment received, last payment made, status, payment frequency terms, highest balance, lowest balance, and month-by-month history.
Each element on the credit builder account influences your credit report and score. While that may feel intrusive, borrowers can find comfort in knowing that some personal data is never included in CBAs: race, color, religion, national origin, sex and marital status.
Summary
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Bank accounts used for credit builder loans and cards.
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Can also refer to account that holds cash collateral for loans and cards.
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They record over 500 combinations of data that influence consumer credit.
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Consumers can use the 5 "credit factors" as a mental framework for managing credit rather than thinking about the 500+ combinations.
Definition
Credit builder accounts are accounts for credit builder loans and cards. Formally, CBAs are "distinct registries maintained by lenders that record transactions from other credit builder products within a lender's database."
The term also refers to accounts that hold cash collateral on credit builder loans and cards.
Credit Builder Accounts vs Credit Builder Loans
A credit builder account records the transactions that occur on a credit builder loan. For example, the account opens when the loan begins.
When the borrower makes a payment, it is recorded on the account. When the loan proceeds distribute to the borrower, it is recorded on the account.
The credit builder loan is the agreement that establishes the principal amount, interest, APR, and additional terms.
Credit Builder Accounts vs Credit Builder Cards
A credit builder account records the addition and subtraction of funds from the credit limit of the credit builder card. For example, the account opens when the borrower signs the agreement.
The accounts begins with the credit limit (addition). As the borrower uses it to make payments (subtraction), there is a negative line on the account. When s/he pays back what was used, a positive line appears on the account.
The credit builder card is the agreement used to "set up" the rules for adding and subtracting on the account.
"In other words, a credit builder account is a series of lines of pluses and minuses on a piece of paper, or in a database."
#1 Credit Builder Accounts as Distinct Registries
The difference between account and product is evident on credit reports. Accounts for credit builder loans and cards record the same information, and in the same way.
The only difference is the name under "Account Type." Loans are installment types, whereas cards are revolving types (see the third point below).
Contents of CBAs
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Account Name. The name of the account, usually the commercial name of the product. For example, "Platinum MasterCard Cash Rewards." The name changes on a credit report, usually to the name of the institution, such as "BANK OF AMERICA."
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Account Number. A 16 digit number. For example, "1234567891595826." The number changes on a credit report, usually into a 12 - 17 randomized sequence of letters and numbers. For example, "OUBHY458961" or "7894561234568XXXX."
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Account Type. Possible values include installment or revolving. Installment accounts have a fixed number of periods, whereas revolving accounts are open-ended. Loans are installment, and credit cards are revolving.
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Installment accounts have sub-types that include:
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Secured personal loans
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Unsecured personal loans
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Mortgages
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Auto
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Student
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Buy Now, Pay Later
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Account Responsibility Type. Whether a single individual is responsible for payments. Another possibility is joint-account or an authorized usership, which means the person has no responsibility. Co-signers also appear under this section.
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Date Opened. The data on which the account was opened.
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Status. Whether the account is open or closed, as well as "paid," "past due," "charged off," and "in collections."
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Status Updated. The date on which the status was last updated.
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Balance. The amount currently owed.
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Balance Updated. The date on which the status was last updated.
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Recent Payment. The value of the most recent payment made against the balance.
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Monthly Payment. The amount that must be paid according to the terms of the agreement. Credit builder loans have fixed monthly payments, which can increase when previous monthly payments are missed. It can also decrease when the borrower pays more than required in a previous month. Credit builder cards can have zero monthly payments due when the borrower uses zero credit. They can be as high as the credit limit and as low as the minimum payment due when the borrower uses some credit.
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Highest Balance. The highest amount owed on the account since it opened.
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Terms. The frequency that payments are due, usually one month. Some accounts require quarterly payments, but this is rare.
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Remarks (overall view). Remarks comments about the overall status of the loan. There are more than 80 in total. Examples include statements such as "Account closed due to transfer," and "Debt being paid by insurance."
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Monthly breakdown. This is a month-by-month view of the account balance, past due amounts, amount paid, and rating (see next).
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Ratings (monthly). Ratings are monthly statuses. They include "Current, paying as agreed," "Account 30 days late," and "Foreclosure," for example.
Impact on Credit Profile
There are over 500 different combinations of the options above, and they all represent a different "profile" to lenders. That said, consumers can think of each item through five lenses, commonly called credit factors:
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Payment history. The amount of positive payments made over time. Monthly breakdown information from CBAs impacts payment history.
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Amounts owed. The amount of credit used. Balance, Balance Updated, and Highest Balance, and Monthly Breakdown from CBAs impact amounts owed.
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Length of history. The amount of time accounts have been open. Date Opened and Status impact length of history.
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Credit mix. The amount of different types of credit (installment and revolving). Account Type impact credit mix.
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New credit. The amount of recently opened accounts. Date Opened, for example, impacts new credit.
#2 Credit Builder Accounts as Collateral Deposits
The second and less common meaning of credit builder accounts is the collateral deposit used on credit builder loans. There are two types of collateral accounts: savings and certificates of deposit.
Savings & Certificate of Deposit Accounts
Payment-secured and fully-secured credit builder loans establish collateral from payments made into an account before and during the life of the loan, and these payments sit in savings or certificate of deposit (CD) accounts.
The savings and CD accounts limit risk for lenders and provide lower eligibility criteria and rates to borrowers.
Those accounts are "credit builder accounts" because they are associated with the product. However, they are entirely separate from the account reported to credit bureaus.
This dichotomy is what allows CBLs to build credit. The independent collateral account (that the credit bureaus do not see), keeps the lender's risk low and allows it to accept subprime borrowers at affordable rates.
