Sesame Credit Builder vs. Secured Credit Card -- Which Is Better?

If you're trying to establish a credit history, recover from a bankruptcy, or lift your FICO® Score out of the range of poor credit, you might want to consider a few credit-building products. Credit-monitoring platforms can help you manage and improve your credit, and some special financial products can help you get your positive payment history on the radar of the credit bureaus.

Let's look at two types of credit-building products, secured credit cards and the new Sesame Credit Builder debit card, and see which one could be the best option to help you build credit.

How secured credit cards work

Secured credit cards are a unique type of credit card designed for people who have poor credit or limited credit history. These cards can help you build credit by starting with a small cash deposit that you borrow against. Over time, if you manage your card responsibly, some secured credit cards let you "graduate" to a regular unsecured credit card.

Secured credit cards don't have the same credit requirements as a typical unsecured credit card. If you can't get approved for a credit card or personal loan, applying for a secured credit card could be a good first step to getting your credit score back on track. However, keep in mind that most secured credit cards will still require a credit check. And these cards do charge interest if you don't pay your full balance on time.

How the Sesame Credit Builder debit card works

There's also a new credit-building product called the Sesame Credit Builder debit card, which works in some of the same ways as a secured credit card, but with some special advantages.

Credit Sesame is a credit-monitoring platform that offers a cash spending account with a prepaid debit card, called Sesame Cash. If you sign up for Sesame Credit Builder, you can turn this debit card account into a credit-building tool. Here's how it works:

1. Sign up for Sesame Credit Builder.
2. Put cash into your Sesame Cash prepaid debit card account.
3. The cash in your debit card account gets linked to a secured line of credit behind the scenes through Credit Sesame's partner bank.
4. You can then use this secured line of credit through your debit card, like a virtual credit card.
5. Use your Sesame Credit Builder debit card for everyday purchases and monthly bills; these bills get paid via your secured line of credit.
6. At the end of each month, with autopay, you pay off your secured line of credit from your debit card account's cash balance.
7. Your positive payment history (via your secured line of credit) gets reported to credit bureaus.

Sesame Credit Builder is unique because it gives you the advantages of a secured credit card without having to apply for a card, get a credit check, and worry about paying interest. The Sesame Credit Builder is a powerful way to turn your everyday debit card spending into positive results on your credit score. And although Credit Sesame doesn't promise any specific results because everyone's credit situation is different, it says you might see a higher credit score as soon as the following month after signing up.

Secured credit cards: Pros and cons

Let's look at a few upsides and disadvantages of secured credit cards.

Secured credit cards: Pros

• Can get approved with fair or poor credit scores
• Some secured credit cards offer cash back rewards or other reward points
• Can graduate to an unsecured credit card
• Security deposits are refundable

Secured credit cards: Cons

• Most require a credit check
• Can charge interest with a high APR if you don't pay your balance in full
• Some charge annual fees
• Some require a large security deposit ($300 minimum)

Sesame Credit Builder debit card: Pros and cons

The Sesame Credit Builder also has its advantages and possible downsides. Let's look at a few pros and cons of this unique credit-building product.

Sesame Credit Builder: Pros

• No security deposit
• No credit check -- instant approval
• No minimum account balance -- spend as much as you want within your Sesame Cash account balance
• Payment history reported to all three credit bureaus

Sesame Credit Builder: Cons

• Monthly fee of $9.99 (fee is waived with minimum direct deposit or monthly spending activity)
• The "virtual secured account" could be confusing -- make sure you understand how it works
• You must make sure that you have enough money in your Sesame Cash account to make purchases
• No cash back rewards or other reward points

Secured credit card vs. Sesame Credit Builder -- which should you choose?

Here are a few reasons why a secured credit card could be the right choice:

• You want the "official" feeling of having a credit card from a bank you know.
• You understand how a secured credit card works and it makes sense to you.
• You want to earn credit card rewards while building (or rebuilding) your credit.

But if you want to try something new and unique, here are a few reasons why the Sesame Credit Builder could be the right choice:

• You want to build credit with everyday spending and paying bills.
• You want the advantages of a secured credit card that works behind the scenes with your debit card.
• You want help building your credit without worrying about getting charged interest.

Bottom line

If you have poor credit, fair credit, or no credit history, you might want to get a secured credit card or use the Sesame Credit Builder debit card to increase your credit score. Both of these credit building products can help you get your FICO® Score to a higher level. Better credit can help you save money on loan interest, car insurance, and more.