Short answer: both can help you build a credit history if your payments are reported. With a secured credit card, you put down a cash deposit and can spend up to your limit. With a credit builder loan, the money is held for you in savings while you make payments, and you get it at the end. The card needs cash up front; the loan needs a fixed payment every month. Ask each one whether it reports to the nationwide credit reporting companies before you sign up. This is general information, not legal or financial advice.
How each one works
The CFPB describes both (CFPB, page last modified September 13, 2024, read October 30, 2026):
- Secured credit card: “You put in an amount of cash, for example $500. Then, you can spend up to that amount on your credit card. When you pay the secured credit card bill, you restore your spending amount back to the amount you put in.”
- Credit builder loan: “The money is not yours for spending”; it is held for you as savings. “You pay the loan in small payments, usually over six to 24 months. At the end of that time, you receive the full amount you paid.”
For more on the loan, including what a CFPB study found about who it helps, see how credit builder loans work.
Side by side
| Secured credit card | Credit builder loan | |
|---|---|---|
| Money up front | A cash deposit, paid before you use the card | None to the loan itself; ask about any fee |
| Where your money sits | Held as a deposit against your limit | The loan amount is held in savings until you finish paying |
| What you pay each month | Your card bill for what you spent | A fixed loan payment |
| Can you spend it now? | Yes, up to your limit | No, you get the money at the end |
| Federal first-year fee limit | Yes, 12 CFR 1026.52(a) for credit card accounts (see below) | No, that rule is for credit card accounts |
What gets reported
The CFPB says that with credit cards and loans like these, “The payments you make are reported to the three nationwide credit reporting companies, and they create a credit report for you”, and that “Paying on time, every time, can help you build a strong credit history” (CFPB). It also lists products whose payments are not reported, such as debit cards, prepaid cards and payday loans. Late payments can be reported too. The sources cited here do not say that every card or loan reports, so ask which credit reporting companies each one reports to.
Fees: the first-year limit on a secured card
For a credit card account, the fees you are required to pay in the first year “must not exceed 25 percent of the credit limit in effect when the account is opened” (12 CFR 1026.52(a)(1), eCFR, text up to date as of October 28, 2026, read October 30, 2026). On a secured card, “A security deposit that is charged to a credit card account is a fee” under that rule, but a deposit paid separately and not charged to the account is not subject to the 25 percent limit (Official Interpretation, comment 52(a)(2)-5). Late fees, over-the-limit fees, returned-payment fees and interest are not counted. For the details, see the credit card first-year fee limit.
The CFPB also says: “Fees and interest rates can be high for secured cards, but using one can help you to establish a credit record” (CFPB, page last modified June 24, 2025, read October 30, 2026). A credit builder loan can also charge interest and fees; compare the total cost of each before you sign.
Getting your money back
For a secured card, the CFPB says: “You put an amount equal to your credit limit in an account as a deposit. As you show you can pay on time, your credit limit may be raised and you may have your deposit refunded” (CFPB). That is a “may”, not a promise, so ask when and how the deposit comes back, and what happens to it if you close the card with a balance. For a credit builder loan, the CFPB says you receive the full amount you paid at the end (CFPB); ask whether the savings earn interest and what happens if you miss a payment or stop paying.
The money involved, only for the math
This example is only for the math. The $300.00 deposit, the $300.00 limit and the $1,200.00 loan are example figures, not offers. No rate is shown, because the sources cited here give none for these products.
| Example | Figure |
|---|---|
| Secured card: deposit and starting limit | $300.00 |
| 25% first-year fee limit on a $300.00 limit ($300.00 x 25%) | $75.00 |
| Limit left if fees up to that amount are charged to the card | $225.00 |
| Credit builder loan: $1,200.00 over 12 months, payment before interest and fees ($1,200.00 / 12) | $100.00 |
| Total of 12 payments before interest and fees | $1,200.00 |
$300.00 − $75.00 = $225.00, and $100.00 x 12 = $1,200.00. Any interest or fees on the loan add to the payment, and they are the cost of getting your $1,200.00 back at the end. For planning a fixed payment, see budget for a loan payment.
Questions to ask before you choose
- Do you report my payments to the nationwide credit reporting companies, and to which ones?
- Card: is the deposit paid separately or charged to the card? When and how can I get it back?
- Card: what fees will I be required to pay in the first year, and what is the APR?
- Loan: what are the APR, the fees and the monthly payment, and do the held savings earn interest?
- Loan: what happens to the held money if I miss a payment or stop paying?
- Can I afford the deposit, or the monthly payment, without falling behind on other bills?
Before you apply, check your reports: see check your credit report before a loan. For other ways to borrow with a thin file, see secured vs unsecured personal loans.
Checklist
- Decide whether you have cash for a deposit or room for a fixed monthly payment.
- Confirm the card or loan reports to the nationwide credit reporting companies.
- Compare fees, interest and the total cost.
- Find out how and when you get the deposit or the savings back.
- Pay on time, every time.
- Check your credit reports for how the account shows up.
Start your loan request How our service works
Sources
- CFPB: What are some ways to start or rebuild a good credit history?
- CFPB: How to rebuild your credit (page last modified June 24, 2025)
- eCFR: 12 CFR 1026.52, Limitations on fees (Regulation Z), current text up to date as of October 28, 2026
- CFPB: Comment for 1026.52, Limitations on Fees (Official Interpretation, Supplement I to Part 1026)
Disclosure: Modern Lending Solutions is not a lender, loan broker or agent for any lender or loan broker, and does not make credit decisions. Any compensation we receive is paid by participating lenders, only for advertising services. This guide is general information, not financial or legal advice.