In a real-life situation, it is best suited that you would make a person a Contributor if they are a valuable asset to the code-base and are dedicated to the project at hand. Normal Collaborators are usually people that make small changes and are not highly necessary for overall code peformance.
Let's start with some definitions:
GitHub will add a badge to the comments of anyone who is a contributor to your repository automatically, see this issue in atom/atom for example:
You don't have to do anything for that to happen, other than merge their code. A collaborator is a more manual process because you're trusting them on an ongoing basis by granting them write access to your repository.
I hope that helps and let us know if you have more questions.