Credit building is undertaking steps to establish a consumer score, or to improve one that already exists. It’s a concept that has been around for decades. The classic means included opening a secured credit card, becoming an authorized user on another person’s credit card, or taking on a credit builder loan from your local credit union.

In the past couple years, there has been a proliferation of new services to help consumers with credit building. Fueled by consumer interest and venture capital, a thousand flowers are blooming in the credit building space. The innovation is fascinating, and Scorenomics’ BoostMyScore^® platform connects consumers with these innovative credit building services to help their credit.

This post looks at the ways these credit building services seek to impact credit scores. As a reminder, here the key drivers for credit scores:

Payment History

In terms of behavior that one can control, hard to beat payment history. And it’s such a clear connection for your credit score. If you miss payments, you’re a bigger risk!

Getting clean, on-time payments onto a consumer’s credit report is job #1 for every credit building service I’ve seen thus far. In the case of having no credit history, the introduction of payments is like somebody turning the light on inside one’s credit file. If there have been missed payments, salting on-time payments into the mix could be helpful.

There are two modes of getting on-time payments added: payments on debt, and payments on recurring obligations.

Debt: These services are based on the long-established basis that credit records are based on…credit. Kikoff grants you a line of credit to buy items within their online store. I often think of them functionally as a department store credit card: you can only buy items within that store, but the debt does go on your credit report. Extra Card has a nifty angle, fronting its customer money for everyday purchases (e.g. coffee, gasoline), an amount which is added to a line of credit. Extra then pulls cash from the customer’s checking the next day to pay off the purchase.

Recurring obligations: These aren’t debt in the formal sense. But they are obligations, such a monthly rent, electricity bills, phone service, even Netflix! eCredable puts a focus on an expansive list of utilities (e.g. cable TV bill), while Boom allows people to add rent payments to their credit record. Heck, with Experian Boost, add that Netflix account!

Both types of obligations inject payments into a person’s credit report.

Amount Owed

While payments are such an obvious factor (“yeah, I owed you”), amount owed could be less clearly understood by the public. The gist of it is, people who owe more money (i) are demonstrating difficult match between cash-in, cash-out; and (ii) have more opportunities to mess up in the future if there are any financial bumps in the road.

While conceptually this element is based on all debt owed, the focus tends to be the dollar amount owed on revolving lines of credit (e.g. credit cards) versus the credit limit of those lines, aka “utilization ratio”. This includes looking at this ratio in aggregate.

Some credit building services are attuned to reducing this ratio of balance owed vs. limit:

For a consumer with a higher utilization ratio, there are credit building services that specifically help this factor. A couple different “store credit card” type of providers that offer a high limit for their store are: previously mentioned Kikoff and Kovo. Meanwhile, debit-card-as-credit-instrument services offer can help the utilization ratio as well. These include the aforementioned Extra Card, Credit Sesame’s Sesame Cash, and Zoro Card.

Other types of credit building services – credit builder installment loans, recurring service payments – do not reduce the consumer’s utilization ratio. But they don’t increase it either.

Credit History Length

Consumers with more established credit histories tend to have lower delinquencies. When it comes to credit building services, it’s tempting to note that time travel does not yet exist. No going back in time and offering that credit building loan!

But the truth is that some services do indeed provide a credit history: those recurring non-debt obligation providers. eCredable, Boom, LevelCredit, and Experian Boost all offer the ability to load past payments onto one’s credit report. Aside from adding payment performance, these results backdate the accounts on the credit report. Voila! Now there’s credit history length.

Credit Mix

Credit mix refers to the types of debt one has: revolving (e.g. credit card) or installment (e.g. auto loan). Apparently, having a mix of different credit types is better than only having one type. And that’s something that the debt-based credit building services can address!

As described previously, there are two flavors of debt credit building services: revolving credit and installment loan. I’ve described some of the revolving credit options: Kikoff, Extra Card, Kovo, Zoro Card, Sesame Cash. On the installment loan side, providers like Self, SeedFi, and CreditStrong bring balance to consumers who may only have revolving credit.

The easy availability of different credit building services allows consumers to find the right solution for their debt mix.

New Credit Inquiries

While credit building services can’t erase recent credit inquiries, here’s the good news: none of them require a credit inquiry to enroll! Signing up for a credit building service won’t hurt you on this factor.

It’s an active, fascinating world in credit building right now. Watch for ever more interesting innovations in this space, and BoostMyScore will be there to help consumers get the right credit building service for their situation.

Click here to find out how Scorenomics BoostMyScore^® provides consumers with appropriate credit building services for their situation.

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