Credit Builder Loan vs. Secured Credit Card in Canada: Which Fits You?

• A secured card is revolving credit: your deposit sets your limit and you spend and repay it each month.
• A credit builder loan is an installment loan: in the usual setup, the lender holds the money and releases it when you finish repaying. Some programs work differently, so read the provider's terms.
• Both only build credit if the provider reports your payments to Equifax Canada or TransUnion Canada, so confirm that before you sign up.
• Late payments are reported too, so pick the product whose payment pattern you can keep up.
• Many people start with one and add the other later.

You put down a refundable deposit, and your deposit usually sets your credit limit, and some issuers set it higher. You use the card for everyday purchases and pay the balance each month. Because the card is revolving credit, how much of your limit you use also matters for your score. Our guide on how secured cards build credit walks through this step by step.

In the usual setup, the lender approves a small loan but keeps the money in a locked account. You make fixed payments over the term, and the lender reports them. When you finish, the held money is released to you, minus any interest and fees. Terms and costs vary by lender, so read the agreement before you apply.

Not every program follows that pattern. Borrowell, for example, says its Credit Builder "is not a cash loan" and reports to Equifax Canada as an installment loan. Check how your provider's product actually works and which bureau it reports to.

• Access to money: a card lets you spend now; a loan usually holds the money until the end.
• Type of credit: a card is revolving credit; a loan is an installment loan, which adds variety to your credit file.
• Utilization: it matters on a card; it does not apply the same way to a loan.
• Cost: check each product's fees and interest on the provider's own page.
• Temptation: some people prefer a loan because the money is out of reach until the end.

If you want a card you can use day to day and you are comfortable keeping the balance low, a secured card is a natural fit; you can compare current options on our credit cards page. If you want a fixed monthly payment and a forced saving habit, a credit builder loan may suit you better. If you are starting from no credit history at all, see our guide on building credit from zero.

KOHO Credit Building reports to one bureau only. Here's what KOHO says about Equifax and TransUnion.

This guide explains general credit-building mechanics in Canada. It is not financial advice, and provider terms vary. See our Editorial Policy for how we verify information on this site.