Credit builder cards (CBCs), also know as credit-builder cards, are a distinct type of revolving credit builder product that helps consumers with limited, zero, or damaged reports improve credit profiles without locked deposit.
Unlike secured credit cards, credit builder cards do not require locked term deposits. Instead, they use risk mitigation techniques to accept subprime borrowers who are otherwise denied by traditional card companies. The techniques include:
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flash credit,
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rolling prepaid accounts,
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auto-pay protection,
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sub-monthly reporting
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single purchase limits,
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spending limits (different than credit limits), and
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cash creditworthiness metrics.
CBCs are not the same as secured credit cards. Secured credit cards require the borrower forfeit control of the collateral over a period of time whose duration is often at the lender's discretion, whereas CBC collateral is either optional or unlocked on a rolling basis — usually one month.
Some rare CBCs use secured funds from adjacent installment loans, which are locked liked secured cards but do not require additional funds from the borrower. Because the borrower has already locked the funds, there is a "net neutral" solutions for the borrower.
CBC are also not the same as credit cards. Some credit cards can be CBCs when they provide low credit requirements, but there are only 3 options in the market as of writing.
Finally, CBCs are not the same as credit builder loans (CBLs). CBLs share with CBCs the purpose of improving credit for subprime borrowers, but they are installment debt. Borrowers benefit most by combining CBLs and CBCs.
55+ Research Hours & 800+ Data Points
This page is the output of 55+ research hours and 800+ data points¹ we
collected to identify the mechanics that allow CBCs to accept subprime borrowers without requiring security deposits.
The data comes from lender policies & public disclosures, cardholder agreements, and discussions with cardholders themselves. There are over 15 credit builder cards in the market as of writing.
Summary
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Credit builder cards can include debit and credit cards, but never secured credit cards
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48 - 99 points is the range of score improvement over 12 months
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14 days is the fastest time delay before impact, with 30 days being the most common
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37% of credit builder cards have no fees at all
An Emerging Trend & Future Opportunities
Credit builder cards are growing in popularity. In under 5 years, more than 700,000 Americans¹ have integrated CBCs into their profiles. Approximately 2 new providers enter the market each year, which means consumers can expect a pool of CBC options going forward.
The challenge for these CBC providers is profitability and innovation. Most providers make money on nominal membership and transaction fees charged to merchants (not consumers), not on interest. As larger financial institutions with multiple revenue streams begin to offer CBCs and capture a part of the market, innovation may slow.
At least one traditional lender, Redwood Credit Union, provides a CBC, which suggests more traditional lenders will follow. The same pattern occurred for other credit building products, such as credit builder loans.
Banks & Credit Builder Cards
Many consumers wonder what banks offer credit builder cards. Only one traditional card company provides a CBC, and it falls under the Classic Credit category (see below). In total, approximately 88% of CBC offer are from online lenders.
Four (4) Types of Credit Builder Cards
Consumers can think about CBCs through four categories, or types. They are Daily Spending, Leave Home, Classic Credit, and Loan Combo.
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Daily Spending. These CBCs are structured to build credit through daily use. They usually have zero or low fees and do not carry a balance that can incur interest. They leverage auto-pay features and rolling prepaid accounts to accept low credit borrowers. Approximately 70% of these cards have zero APR, fees, and memberships. They make money on small transaction fees charges to sellers, not consumers. An example is Zolve.
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Leave Home. These CBCs are designed to handle payments on recurring purchases, such as subscriptions and phone bills. They're good to "leave home" because once consumers configure their recurring purchases and enable auto pay, these cards build credit and generate rewards in the background. Only about 33% of these cards have zero fees. An example is Tomo.
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Classic Credit. These CBCs are traditional credit cards with low credit requirements. They look, feel, and operate like normal credit cards, which is ideal for consumers with bad credit who want the familiarity of a traditional credit card. They have an average APR of approximately 27%. An example is Petal.
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Loan Combo. These CBCs are primarily for use in combination with credit builder loans from the same lender. For example, a credit builder loan with savings sitting in account can act as collateral for the CBC. All of these CBCs charge APR or fees. An example is Self.
Credit Builder Cards vs Secured Credit Cards
Credit builder cards are distinctly different from secured credit cards. Both are credit builder products available to subprime borrowers, but secured credit cards impose more austere constraints than CBCs, namely locked deposits.
Secured cards require borrowers deposit a lump sum of cash as collateral for an indefinite period of time. The card company offers to reimburse the collateral after a period of responsible use, but unlike traditional time deposits the lender reserves full discretion.
This process is called "graduation," and many lenders are notorious for never graduating their secured cards.
Additionally, the card's collateral usually equals its credit limit, which essentially eliminates the lender's risk. Despite limited risk, secured credit cards impose high interest rates on consumers. This dynamic begs the question of
Credit builder cards do not lock collateral indefinitely (except in special circumstances that are net neutral to borrowers). They either make collateral optional or use rolling prepaid accounts (such as checking accounts) that are available for withdraw each month.
Moreover, credit builder cards are often structured to avoid or limit interest payments. More than 60% have 0% APR, and only ~30% charge membership fees. These membership fees provide access to numerous financial services.
Debit Cards can be Credit Builder Cards
Some CBCs are debit cards. This is counterintuitive because debit usually signals a direct withdraw from a cash account, but at least four (4) credit builder cards are debit cards.
Credit Cards can be Credit Builder Cards
Credit cards that don't require security deposits have accept subprime borrowers can be credit builder cards. These are rare, but more than 5 credit cards in the market double as credit builder cards.
Defining Characteristics
Rolling prepaid accounts are only one defining characteristic of 7 we identified. As a whole, CBCs protect consumers.
While traditional cards profit from consumer mistakes, CBCs do not make money on card activity. This independence allows CBCs to put guardrails in place to protect everyday consumers.
Every CBC uses one or more of the characteristics below.
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Flash credit. The rapid swapping of debit for credit transactions in the background. The borrower swipes a debit card, at which point s/he "lends" the CBC the amount of the transaction and reimburses itself from the borrower's checking account.
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Rolling prepaid accounts. Checking or savings accounts in which the borrower places funds. The lender pays off any debt for the month using these funds and prevents the borrower from spending more than the account balance. Some CBCs allow no-fee overdraft, which they cover with funds provided in the next month.
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Auto-pay protection. The fundamental feature for good CBCs. Auto-pay allows the lender to pay itself from the rolling prepaid account. Some CBCs allow the borrower to turn off auto-pay, but the spending limit prevents overdraft.
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Spending limits (often called "spending power"). The preprogrammed amount borrowers can spend each month. It's not the same as credit limit, which is the total amount of credit reported to credit bureaus. Traditional credit cards only use credit limits, but the addition of a spending limit ensure borrower utilization remains low.
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Single-purchase limits. CBCs often apply limits to single purchases, even when the purchase would not exceed the spending limit. These CBCs usually operate like traditional credit cards but accept subprime borrowers, rather than use flash credit or rolling prepaid accounts.
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Sub-monthly reporting. CBCs can report transaction activity as frequently as every week rather than monthly or biweekly like traditional cards. This means faster credit improvements. One notable CBC called Ava offers a money-back guarantee if consumers don't see improvement in 14 days.
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Cash creditworthiness metrics. Over 50% of CBCs do not check credit at all, and another 17% only run informal inquiries (also known as "soft inquiries"). They instead rely on the protective measures in the previous six points, as well as bank account transaction history. Cash availability in rolling prepaid accounts and regular deposits signal reliability so CBCs do not depend on the credit scoring system.
No Deposits a Key Feature
By definition, CBCs do not require locked term deposits. Instead, they use open-ended accounts such as checking, savings, or "secured" wallets that borrowers can deposit and withdraw from on a monthly basis.
These are called rolling prepaid accounts because the lender does not control funds indefinitely, unlike with secured credit cards.
Qualifying Terms
The purpose of credit builder cards is to build credit, so they must have reasonable card terms. Here are the criteria.
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Max APR: 35.99% (none are this high, and most are 0% APR).
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Min Credit Limit: $1.
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Max Annual Fee: $65 ($0 option must be available to qualify unless linked to a loan).
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Max Late Payment Fee: $40.
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Max Returned Payment Fee: $40.
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Max Foreign Transaction Fee: $0.
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Max Cash Advance Fee: greater of $20 or APR on purchases.
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Max Balance transfer Fee: 0% and $0.
That said, over 37% of CBCs charge no fees at all.
Who Should Get
CBCs are ideal for borrowers with limited, zero, or damaged credit history. Consumer with thick credit profiles and limited derogatory accounts will benefit more from traditional credit cards, who have better rewards systems in place.
Credit Requirements
Credit builder cards are designed for borrowers with limited, zero, or damaged credit. Over 50% of CBCs do not check credit at all, and another 17% only run informal inquiries. The remaining ~30% run hard inquiries but openly accept borrowers with bad and fair credit.
When to Get
Borrowers with fewer than 6 credit cards should consider CBCs in the near future. Account age is 15% of credit profile, which means the earlier borrowers get an account on file, the faster they will start building a thick credit file.
However, there are three reasons to postpone applying:
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Outstanding debts. Borrower with outstanding debts should prioritize them off before getting a CBC because outstanding accounts hinder building efforts. Borrowers can still get and use a daily spending CBC but should refrain from excessive purchases. It's always better to pay off debt.
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Limited cash. Borrowers with limited cash reserves should limit their expenses as much as possible. They can still use a zero-fee daily spending CBC with caution but should refrain from excessive buying.
Effectiveness
The range of credit score improvement is 48 - 99 points depending on the starting score. That said, credit scores are only one part of creditworthiness.
The extended benefit of using CBCs is the addition of accounts and payment history that thickens consumer profiles. Positive marks signal reliability and consistency to lenders, which ultimately saves $1,000s on future debt payments.
Fast Results
CBCs can build credit in as little as 14 days, but most offers take 30 days for full effect. Borrowers will reap most of the rewards after 365 days of consistent us.
How to Get
Every CBC has an online application, so the process is straightforward. That said, borrowers should ensure they have the right mix of products to reach their goals.
Many consumers get "stuck" in the building process because they do not use the right mix of accounts, at the right time, with the right amounts. Good credit building programs minimize this risk. In addition, they help avoid misleading offers, such as the ones below.
Cards that are NOT Credit-Builders
Our research revealed many payment cards incorrectly marketed as credit builder cards. These offers are either secured credit cards, have high credit requirements, have annual fees, are store cards, or only provide authorized usership, not ownership.
Here are a few examples with explanations:
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Revolut. This is a debit card that does not build credit.
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Greenlight. This is an authorized usership program, not a card assigned to the borrower's name.
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Kikoff Card. This is a secured credit card.
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Grain. This is a secured line of credit.
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Chime Credit Builder. This is a secured credit card.
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Upgrade. This is a great card, but it's better for those further along the credit building curve.
Target Markets
Credit builder cards are primarily available in the United States and the United Kingdom.
Citations
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Gomez, Noah. 2023. Review of Credit Builder Card Database. ThickCredit.com. Thick Credit. September 17, 2023. https://thickcredit.com/datasets/private-credit-builder-card-offers. The Credit Builder Card Database is not available freely to the public.
