Chime Credit Builder Card is one of the unique credit cards offered by the popular mobile banking fintech company Chime. It does not have any annual fees, interest and as the name indicates, the main objective is to help you build your credit score. But if you have been wondering on the lines that this sounds too good to be true and does chime credit builder actually work? This post will be helpful to get more details to understand how the chime credit builder card actually works, how it is designed to build your credit score, some important factors you should be aware of when using a chime builder card and interesting insights on how it has really worked to increase the credit score for many chime users.
Many people carry a negative impression on using credit cards. And there are good reasons for this. When using credit cards, people end up paying a lot of extra money in fees and even fall into a debt trap by overspending on impulsive purchases and defaulting or simply missing payments. A credit card debt can be very expensive and is certainly not to be invited.
But like all things in life, a credit card has its pros and cons. If you use your credit card wisely and consistently make payments on time, you can end up getting rewards, interest-free credit and also build a reliable credit history that sets you up to get a great credit score.
So in the end it depends more on how you use the card. But here, the product from Chime is focused on helping you build a credit score.
How doe Chime Credit Builder Card Actually Work
Chime’s Credit Builder Card is a unique product as it takes away most of the negative factors associated with credit cards, by its very design. While it is a credit card, it actually works like a prepaid card. To use a Chime credit builder card, you need to first open a special account called Chime Credit Builder secured account and deposit any money you want to use on your credit card beforehand in it.
This amount becomes your “credit limit” and you cannot spend more than the amount you are holding in your secured account at any point in time. So this minimizes any scope for overspending as you are actually not getting any credit and using your own money which you have parked in a secured account.
Secondly, on making payments on time, Chime offers the ability to automate this, so that on the due date, any payment for your credit card “dues” is automatically done using the funds from your Chime Builder Secured account.
Why should a person use a credit card which requires you to prepay and just not opt for a debit card?
Here is where we complete the circle- to get the benefit of building your credit score.
And the benefits of a higher credit score can be enormous if you consider the long term value – you get better rates on insurance, lower interest rates on loans, have an easier time renting an apartment and a ton of other benefits.
Does Chime Credit Builder Actually work?Does Chime help build credit?
Chime Credit Builder can help you build your credit history as it reports your card spend data and payment history to the credit bureaus.
It minimizes the possibility of overspending on your card (as you cannot overdraw or spend more than the funds available in your secured account) and even provides you with an option to auto-pay the card dues on time from your secured account.
This gives you greater control on factors that impact your credit score i.e. keeping your credit card spend in check and on-time payments. Ultimately, you can end up increasing your credit score over a period of time.
What factors impact your credit score? How is your Credit Score Calculated
In general, the following factors affect your credit score and how Chime Credit Builder helps
This is a major factor-If you are paying your loan or card dues on time or not, any late or missed payments, for how long payments were overdue etc.
So if we understand why a payment history is negatively impacted ? Usually, it is a case where you have overspent and don’t have the funds to make the payment. Or you had the funds but missed making the payment on the due date because you forgot or for any other reason.
With Chime, both these risks are minimized as you cannot spend more than the funds you have kept in your secured account. As regards making payment on time, you can set up automatic payments to clear dues directly from your secured account on the due date. So there is a good chance that you will have an on-time payment history
Length of credit history
How long you have been using credit and a historical track record of taking and repaying the credit. If you have a long record of using credit and paying it on time, it works in your favor.
Here again, Chime helps you increase the length of your credit history, especially for those users who avoid debt of any kind like a credit card or loan. You can easily shift the purchases you normally make on your debit card like your everyday expenses on groceries, subscriptions, uber etc. to a credit builder card. As Chime does not have any fees or interest and you are actually using your own funds which you have kept in the secure account, you don’t have to worry about overspending or other expenses associated with debt.
Before you move on to the other factors, you must keep in mind that the two points discussed above i.e. payment history and length of credit history happen to be the major factors that impact your credit score. And the Chime Credit Builder helps you on both of these, so it is literally designed to help your journey in building a decent credit score.
How much money you have consumed or owe out of the credit limit assigned to you. If you use a small portion or reasonable portion of the credit limit, it helps.
Here there is a big difference between when you compare your Chime Credit Builder Card to traditional credit cards. With other credit cards, you are assigned a fixed credit limit and how much you consume is reported to credit bureaus as your utilization. If you are maxing out your credit card limit, it can negatively impact your score. E.g. if your credit limit is $1000 and you spend $800 on your card, it means the utilization is 80% which can be quite high and may cause a dip in your score.
But with Chime Credit Builder, there is no credit limit, as you are using your own funds which you have kept in a secured account. If you want to spend more, you can simply add more funds to your secured account at any point in time. So Chime does not have to report any utilization data on the Chime Credit Builder Card.
Type of credit
What kind of loans or credit cards do you currently have on your plate.
This depends more on the individual. If the Chime Credit Builder Card is the only credit you have taken, it is safe to say that you don’t need to worry about any negative impact.
Any recent change in credit, if you have taken any new debt recently
This is actually a mixed bag. Even with a Chime Credit Builder Card, your score may dip initially since it’s a new credit facility you have taken.
This is more so if a user already has several loans or credit cards and takes additional credit which may be viewed as riskier. But credit bureaus can figure out and rectify this over a while. Once you start using your card and building your credit history, your score will steadily go up.
Other factors like Inquiries from lenders
This is a specific issue and doesn’t have much
Also, important to note is that there is not one but multiple credit scores that a person can have, depending on the credit bureau providing the rating. There are 3 major credit bureaus Equifax, Experian and TransUnion and all lenders and creditors may not provide or use information from all of them.
Points to Note – Chime Credit Builder Card
But here again, the good thing is Chime reports data to all these three bureaus.
Points to note
Be Patient, results take time
Don’t expect an immediate bump in your credit score as soon as you begin using your Chime Credit Builder Card. In fact, the reverse can be true. Initially your credit score may dip as it’s a new credit which brings down the average length of your credit history.
But over a period of time, as you consistently use your card and make on-time payments, your credit score will start to move in the right direction.
In fact many chime credit builder card users have seen a decent increase their credit score, many seeing a rise in just two months.
Overall Credit Profile
Be aware of your overall credit portfolio. Your credit score is not just dependent on Chime Credit Builder Card, if you also have other loans or cards. So even if are doing all things right with Chime Credit Builder card but not taking care of other credit, it can still be difficult to move up your credit score.
The key is building up an overall positive credit history.
But many people using Chime Credit Builder card are first time users of credit. So again, the chances are high that this group of users will see a quick rise in the credit score.
How long does it take Chime Credit Builder to report?
The Chime Credit Builder Card reports to all three credit bureaus at the beginning of every month. But credit bureaus can take their own time i.e. which can go up to a few weeks to process. So you should be patient and at least wait for a month to see if there is any progress.
Hope this post helped you get a clearer understanding of how Chime Credit Builder works and how it can help you build a better credit score. If you find it useful, please share it with your friends who are still mystified by this product. Also, feel free to let us know your experience in the comments.