STUDENT CREDIT CARDS
CREDIT BUILDER LOANS
Who Wins in a Credit Building Fight?
It is hard to decide between all the credit building tools available and choosing between student credit cards vs. credit builder loans is not an easy decision.
Both of these loans will positively build your credit and, you will see how you really can't go wrong with either one that you choose.
We will face them off for five hard-fought rounds and see how each of them affects the five credit type categories; payment history, amounts owed, length of credit history, credit mix and new credit inquiries.
Round 1: Payment History
Student Credit Cards vs. Credit Builder Loans each score themselves one point for payment history in round one.
Both Student Credit Card companies and Credit Builder Loan lenders are going to report your monthly payments to Equifax, TransUnion and Experian (the big three credit bureaus).
Your payment history accounts for 35% of your total credit score.
These two credit building tools will help build your credit by creating a history of timely payments for your student credit card revolving loan and your credit builder unsecured installment loan.
Round 1 Result: Tie
Round 2: Amounts Owed - Available Credit
In round two, Student Credit Cards takes the lead by scoring one point in the credit score category, amounts owed - available credit.
If you were to receive a student credit card, your maximum available credit would increase by the max limit on your new credit card.
Both Student Credit Cards vs. Credit Builder Loans for bad credit would see utilization of available credit increase as you begin using your credit card and immediately as reported by the Credit Builder lender.
Your credit score is much more affected by credit card revolving loan utilization of your available credit, even more so than installment loan utilization of credit with Credit Builder Loans.
You may see a decrease in your credit score if your credit card balances exceed 30% of utilization of your credit limit each month.
Because installment loans are a fixed loan, the credit bureaus can better predict your risk, and these types of loans don't affect your available credit near as much as the unpredictable revolving loans associated with credit cards.
A second key factor in this category is your maximum available credit.
By adding a student credit card, your available credit will increase by the amount of credit extended to you.
Having a larger available credit limit is helpful because you can carry a larger balance on your credit cards and still only utilize 30% or less of your credit available.
Credit Builder Loans for bad credit do not affect your available credit as they are an unsecured installment loan with fixed monthly payments and payment terms.
Building credit with credit cards is the most common way to improve your credit score.
Round 2 Result: Student Credit Cards
Round 3: Length Of Credit History
One credit type that you need to consider is the length of your credit history.
The credit bureaus tracked when you opened your first credit account and each subsequent account.
By tracking all your credit accounts, they can calculate an overall average credit history by months.
In the fight between Student Credit Cards vs. Credit Builder Loans, both credit building tools will report to the big three credit bureaus and affect the length of credit history the same.
Round 3 Result: Tie
Round 4: Credit Mix
In round four, Credit Builder Loans for bad credit puts a beating on Student Credit Cards when credit mixes are discussed.
There are multiple types of credit mixes, but this fight is between: Revolving Loans and Installment Loans.
Revolving Loan - Student Credit Cards
Credit cards are a type of revolving loan that the balance fluctuates billing cycle to billing cycle based on how much of the credit you use and the size of your monthly payments.
It is the most common type of credit, and most people start with a revolving loan because they are the easiest to qualify for.
Building credit with credit cards by adding a revolving loan to your mix is a great way step.
Unsecured Installment Loan - Credit Builder Loans
The Credit Builder Loans are a type of an installment loan that includes a fixed loan amount with fixed payments over a fixed term.
These loans are generally unsecured like a personal loan and are usually more difficult to qualify for.
However, Credit Builder Loans are super easy to qualify for and do not have a credit check.
Because Installment loans typically are added to your credit mix when you are further down your credit journey, a Credit Builder Loan now can diversify your credit mix immediately and help build your credit faster.
Round 4 Result: Credit Builder Loans
Round 5: New Credit inquiries
Applying for a Student Credit Card will result in a new credit inquiry of your credit history, also known as a hard pull.
Ten percent of your credit score is derived from how many new credit inquiries that you have in a given period.
If you make too many inquiries for new credit, this can be a bad sign to the credit bureaus, and it may negatively affect your credit.
With a Credit Builder Loan, there is no credit check, so you will not receive a point for your new credit inquiry.
This is a great bonus to Credit Builder Loans and why they win the fifth and final round in the fight between Student Credit Cards vs. Credit Builder Loans.
Round 5 Result: Credit Builder Loans
Credit Builder Loans Beats Student Credit Cards in an Upset
This was a really close fight with the deciding blow being Credit Builder Loans slight advantage over Student Credit Cards in the credit mix category.
If you will qualify for a Student Credit Card, then get one of them as well since both are great credit building tools that will help you establish a good credit base.
If you do not qualify for a Student Credit Card, there are always Secured Credit Cards to consider that are much easier to qualify for.
Either would be a great choice to add to your financial portfolio.
Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.
Mark B. Huntley, a personal finance writer who has contributed to such publications as Forbes, is a former finance and consumer advocates attorney who lost everything in the real estate crash in the late 2000s. Credit Knocks was inspired by the trials of his credit building experience and the desire to help others understand the easy steps necessary to improve one’s credit score.