A comparison of credit builder loans (CBLs) and rent reporting services (RRSs) helps consumers understand the advantages and downsides of using each product, or both.

Rent reporting services are growing in popularity since the credit bureaus authorized rental tradelines in 2014, and credit builder loans have had more than a decade to standout as viable credit improvement tools.

Rent reporting services establish a unique account on consumer credit files that provides a credit boost for an expense consumers already pay, whereas credit builder loans add installment accounts for consumers with subprime history. Most consumers benefit from using both.

Takeaway for Consumers

Simply put, rent reporting is not a a debt like credit builder loans. Rent reporting services provide a modest boost by establishing rental tradelines that sit in their own category on credit reports, whereas credit builder loans establish thick profiles via one of the most powerful credit account types: installments.

Key Difference

The primary difference between credit builder loans and rent reporting services is effort vs reward. Rent reporting is near-zero effort because it uses an expense consumers already make, but low-reward because they do not thicken reports and promote an average score increase of 19 points.

Credit builder loans require more thought but thicken credit files that contribute to growth in the present and future terms.

Key Similarity

Both CBLs and RRSs are credit builder products that help consumers with below-average credit thicken their reports to save money on future debt.

Properties Compared

Credit builder loans and rent reporting services share properties in 4 areas. They are consumer highlights, agreement specifications, lender conditions, and credit reporting. This investigation uses these 4 lenses to compare and contrast.

Consumer Highlights

Specifications

Lender Conditions

Credit Reporting

#1 Purpose

Summary. Both rent reporting services and credit builder loans focus on helping consumers with damaged, limited, or zero credit to establish tradelines on their reports, but rent reporting services focus on leveraging a current payment as a tradeline rather than establishing a new one.

Similarities. Both products aim to establish new tradelines on a credit report.

Differences. Rent reporting is not exclusively a credit building tool because any consumer paying rent can leverage it without charge, even if they have positive history.

Exceptions. There are no exceptions to purpose because the defining specifications of each product also outline their purpose.

#2 Uses

Summary. Rent reporting services and credit builder loans have a common usage in building credit, but credit builder loans have the added benefit of establishing savings.

Similarities. Both products leverage payments the borrower makes to establish history and improve scores.

Differences. Credit builder loans have a dual purpose of saving money and supporting credit growth.

Exceptions. Unsecured credit builder loans provide money upfront that the borrower can leverage to fund 1 of 13 uses.

#3 Target Borrowers

Summary. Credit builder loans and rent reporting services both target borrowers who want to improve their credit file, but credit builder loans require more work and are therefore better equipped to serve the needs of borrowers with specific borrowing goals and timelines.

Similarities. Borrowers with damaged, limited, or zero credit benefit most from the products.

Differences. Borrowers with specific borrowing goals such as mortgages and car loans often benefit more from credit builder loans because they carry more weight on reports than rent reporting services.

Exceptions. There are no exceptions to target borrowers for CBLs and RRSs.

#4 Popularity

Summary. Little data exists around the popularity of rent reporting services, but they are becoming default features in many property management software and are likely to become pervasive as the trend continues, whereas there are an estimated 200 - 750 credit builder loans in the market.

Similarities. The exact figures for CBLs and RRSs are unclear as of writing, but both products are growing.

Differences. Because consumers often acquire rent reporting directly from property management software, it will likely become more pervasive than credit builder loans.

Exceptions. There are no exceptions to popularity figures between CBLs and RRSs.

#5 Amount

Summary. The average principal on credit builder loans is approximately $2,000, whereas rent reporting is equal to rental amount. On average, rent in the United States is just over $1,300.

Similarities. Both rent reporting services and CBLs values sit between $1,000 and $2,000 on average.

Differences. Credit builder loans provide more flexibility on loan amount, whereas rent amount is already paid at the time of reporting.

Exceptions. Two alternative CBLs called unsecured and fully-secured offer values much higher than the average because they use different approval standards and collateral structures.

#6 Term

Summary. Rent reporting has no term or duration, whereas credit builder loan terms are most commonly 12, 24, 36, and 60 months.

Similarities. Some rent reporting services provide up to 24 months of past payments in one shot, which equates to immediate impact of a 2-year CBL.

Differences. Credit builder loans are both longer and more flexible than rent reporting, whose term is determined by the number of months borrowers pay.

Exceptions. The exception to the rule is one-shot reporting of up to 2 years of history with rent reporting.

#7 Interest

Summary. Rent reporting does not accrue interest, and the average rates on CBLs is 6% — 14%.

Similarities. There are no similarities between interest charge or rates on CBL and RRSs.

Differences. Simply put, rent reporting is not a debt and therefore has no interest associated with it — contrary to credit builder loans.

Exceptions. There are no exceptions to interest between these products.

#8 Collateral

Summary. Rent reporting does not require collateral because it is not a form of debt, whereas savings-based collateral is a key value driver on credit builder loans.

Similarities. There are no similarities between the use of collateral on CBL and RRSs.

Differences. The simple difference is that credit builder loans use collateral, but RRSs do not.

Exceptions. One type of credit builder called unsecured does not use collateral.

#9 Lender Types

Summary. Rent reporting does is not a debt and therefore does not have a lender, but credit builder loans are available through banks, credit unions, and online lenders.

Similarities. There are no similarities between credit builder loan lenders... and the nonexistence of lenders under the rent reporting structure.

Differences. The simple reality is that rent reporting builds credit without the use of debt and therefore does not include a lender, and the best credit builder loans are available through online lenders, banks, and credit unions in order of importance. Self is a popular example.

Exceptions. There are no exceptions to lender types for the simple reason that rent reporting does not have any.

#10 Lender Opinion

Summary. Lenders consider rent reporting a "plus," but they're more interested in borrowing history because this is the stronger indicator of default risk.

Similarities. There are few similarities, except that lenders view on-time payments on credit builder loans and RRSs as positive, and late payments as negative.

Differences. Some rent reporting services have a "no harm" model in which only on-time payments are reported.

Exceptions. There are no exceptions to lender opinion for RRSs and CBLs.

#11 Impact on Credit

Summary. Credit builder loans have a decisively strong impact on credit than rent reporting because unlike RRSs they are debt and therefore stronger indicators of borrower default risk.

Similarities. On-time payments on both products has a positive impact, whereas late payments has a negative impact. Both options impact both credit report and score.

Differences. Credit builder loans do more for current and future profile because they are an instance of debt, contrary to RRSs that have no debt component.

Exceptions. There are no exceptions to impact on credit.

Conclusion

Altogether, rent reporting provides a quick way to get a small credit boost on payments borrowers already make without the use of debt, whereas credit builder offer installment debt to borrowers with poor credit that carries value in the current and future terms.

Citations