Credit Builder Loans vs. Credit Builder Cards

Published: 26 October 2023
Updated: 5 April 2024

Author: Noah Gomez

An exhaustive comparison of credit builder loans to cards highlights their pros and cons so consumers can make informed decisions for their situation. Credit builder loans (CBLs) and credit builder cards (CBCs) are distinct products, but they work best together.

credit builder loans vs credit builder cards

Credit builder cards are revolving debt with no collateral requirements, whereas credit builder loans are installment debt whose monthly payments double as collateral until paid in full.

They are not the same as personal and payday loans, and they're different from secured credit cards. Rather than fund a purchase, bridge a cash gap, or require up front deposit, CBCs and CBLs construct credit profiles so consumers ensure approval and get the best rates on future debt.

Takeaway for Consumers

Consumers with zero, limited, or damaged credit use credit builder loans and cards to diversify their credit profile by creating payment history under installment and revolving accounts that anchor account age in time.

Credit builder card revolving credit can be used a zero cost, and credit builder loans crucial installment history at $8 — $10 dollars per month for a year.

Key Difference

The primary difference is that credit builder loans almost always charge small interest and establish installment history, whereas credit builder cards can be zero cost and create revolving debt history.

Key Similarity

Both products use alternative creditworthiness metrics and savings-based collateral to accept consumers with zero, limited, or damaged credit.

Properties Compared

Consumer Highlights

  • Purpose
  • Uses
  • Target Borrower
  • Popularity


  • Amount
  • Term
  • Interest & APR
  • Collateral

Lender Conditions

  • Lender Types
  • Lender Opinion

Credit Reporting

  • Impact on Credit

#1 Purpose

Summary. Credit builder loans and credit builder cards both focus on constructing consumer credit profiles to ensure approval and get low rates, but credit builder cards can fund daily purchases whereas credit builder loans have no funding value.

Similarities. CBLs and CBCs both focus on improving consumer credit profiles.

Differences. Credit builder cards have an additional purpose: funding daily spending transactions like traditional payment cards.

ExceptionsUnsecured credit builder loans provide cash upfront that help borrowers fund purchases.

#2 Uses

Summary. Credit builder loans proceeds sit in a secured account that serves as collateral until the loan is paid off, but credit builder card uses include daily spending and recurring expenses such as monthly subscriptions.

. Ultimately, the use-case for both products is improving credit profile. The CBL structure makes this clear, and CBC features like flash credit and rolling prepaid accounts reinforce the focus on consumer success unlike sneaky fees associated with classic credit cards.

. Credit builder card uses go beyond credit improvement alone with daily spending.

. Unsecured CBLs fund purchases similar to uses authorized on personal loans.

#3 Target Borrowers

Summary. CBLs and CBCs both target consumers with damaged, limited, or zero credit history, but credit builder cards tend to target younger generations who are drawn to their their zero-cost structures and guardrails.

. Anyone with damaged, limited, or zero credit benefits from using credit builder loans and cards.

. Borrowers with less experience often find the security and cost structure associated with credit builder cards more attractive than signing for installment credit, despite the possibility to cancel without penalty.

. Small, 6-month credit builder loans are as accessible as credit builder cards.

#4 Popularity

Summary. The credit builder card product category is a nascent concept first outlined by and is therefore much smaller than the market for credit builder loans. There are an estimated 200 — 750 credit builder loans in the market, whereas there are an estimated 15 — 20 credit builder cards.

. Both products occupy a small portion of total consumer debt in the niche credit building category.

. Credit builder loans are widely established across lenders of all kinds, whereas credit builder cards are available primarily through neo-banks and other online lenders.

. There are no exceptions to popularity metrics between CBLs and CBCs.

#5 Amount

Summary. Credit builder cards do not systematically define a credit limit like classic credit cards and instead use a combination of debit-to-credit transaction swapping, connected account balances, and "spending limits" to define their maximum amount, whereas credit builder loans have an average principal just under $3,000.

. There are few similarities between CBC and CBL amounts, except that they're both under the $20,000 mark, above which lenders typically require physical collateral such as cars and real estate.

. Credit builder cards do not always define credit limits because they use other techniques to report positive payments, whereas credit builder loan amounts are fixed like all closed-end credit with an average of approximately $2,000.

. A small number of credit builder cards are classic credit cards with low eligibility requirements, qualifying them as builders without the use of new transactional techniques and spending guardrails.

#6 Term

Summary. CBCs are revolving credit and as such do not have fixed terms like credit builder loans, whose most common loan terms are 12, 24, 6, and 36 months.

. There are no similarities between CBC and CBL terms.

. CBLs have fixed terms as low as 6 months, whereas CBCs have none at all.

. There are no exceptions to term length between these products because the difference is a defining characteristic.

#7 Interest

Summary. The only credit builder cards that charge interest are classic credit cards with subprime eligibility criteria, and their average APR is approximately 27% as of writing. Credit builder loans, however, have an average interest rate between 6% and 14%.

. There is no decisive similarity between CBC and CBLs interest because the difference is a driving reason consumers should use both simultaneously.

. Put simply, CBCs generally don't charge interest but credit builder loans average between 6% and 14%.

. We know of 5 credit builder cards that disclose APR, and 1 of them guarantees to never apply it to the borrower's balance.

#8 Collateral

Summary. Credit builder cards never require up front deposit and instead rely on cash balances in linked accounts to preempt overspending, whereas credit builder loans are structured to apply monthly payments towards a collateral balance that secures the loan until payoff and subsequent distribution.

. There are no similarities between CBL and CBC collateral because it is a defining difference between the products.

. Credit builder loans use savings-based collateral, whereas CBCs don't require the borrow lock cash in an account to use.

. Unsecured credit builder loans do not require collateral at all.

#9 Lender Types

Summary. Both products are available through regional banks, credit unions, and online lenders, but credit builder card offers are primarily neo-banks online whereas a majority of credit builder loans come through credit unions and digital providers.

. Banks, credit unions, and digital providers offer CBCs and CBLs, and online lenders offer the best terms for both. For example, Self offers both CBLs and CBCs.

. Borrowers can find CBLs at a larger number of both brick & mortar lenders but will find CBCs almost exclusively online.

. The classic credit card subcategory of CBCs are available at select banks.

#10 Lender Opinion

Summary. The beauty of credit builder products is that they maintain the same reporting value as mainstream cards without the strict eligibility requirements and heavy interest rates. Lenders view CBLs as secured personal loans and CBCs as simple revolving lines of credit.

. Lenders carry no prejudice against CBCs and CBLs and interpret their usage with the same confidence as conventional loans and cards.

. Credit builder cards use more varied techniques than CBLs, so each variation may appear slightly different to lenders. CBLs, however, are almost always the same.

. There are no exceptions to lender opinion for CBCs and CBLs.

#11 Impact on Credit

Summary. Credit builder loans contribute installment credit, whereas credit builder cards add revolving credit. Both impact payment history, credit mix, and account age, and CBCs impact credit utilization as well.

. CBCs and CBLs both impact three of five core credit factors: payment history, credit mix, and account age. These factors influence both credit report and score.

. Credit builder cards contribute to credit utilization rate, whereas CBLs do not because they are not a revolving line.

. There are no exceptions to impact on credit because the revolving and installment nature of each account determines credit impact.


Credit builder loans and cards occupy the two account types in credit improvement and work best when used together because lenders trust borrowers with diverse, responsible credit management.


  1. Gomez, Noah. 2023. Review of Credit Builder Loan Offers Dataset. Thick Credit. July 24, 2023.

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About the Author

Noah Gomez (founder of Thick Credit) is a transatlantic professional and entrepreneur with 3+ years experience in consumer finance education. He also has 5+ years of experience in corporate finance, including debt financing, M&A, listing preparation, US GAAP and IFRS.

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