Credit Builder Loans
Credit builder loans are designed specifically to help people build or rebuild credit. Unlike traditional loans, you don't receive the money upfront. Instead, the funds are held in a savings account while you make payments, building both credit history and savings.
How Credit Builder Loans Work
Apply & Get Approved
Approval is usually guaranteed since the lender holds the funds
Make Monthly Payments
Pay on time every month, building positive payment history
Build Credit History
Payments are reported to all three credit bureaus
Receive Your Money
Get the full loan amount plus interest at the end
Best Credit Builder Loan Providers
Self (formerly Self Lender)
Loan amounts: $25 - $150/month
Terms: 12 or 24 months
APR: 15.92% - 15.97%
Setup fee: $9 - $15
✓ Pros
- Low monthly payments
- Mobile app
- Secured credit card option
✗ Cons
- Non-refundable fee
- Early closure penalty
Credit Strong
Loan amounts: $1,000 - $10,000
Terms: 12 - 120 months
APR: 15.51% - 15.73%
Setup fee: $15
✓ Pros
- Multiple account types
- No hard credit check
- Can pause payments
✗ Cons
- Monthly admin fee
- Limited mobile features
MoneyLion
Loan amounts: $1,000
Terms: 12 months
APR: 5.99%
Setup fee: $0
✓ Pros
- Low APR
- No fees
- Full banking app
✗ Cons
- Requires membership
- Limited loan options
Who Should Consider a Credit Builder Loan?
✅ Good Candidates
- No credit history (credit invisible)
- Damaged credit from past mistakes
- Recent immigrants building US credit
- Young adults starting their credit journey
- Post-bankruptcy rebuilders
❌ Not Ideal For
- Those who can't afford monthly payments
- People with good credit already
- If you need money immediately
- Those with unstable income
- If secured cards are sufficient
Expected Credit Score Impact
Typical Score Improvements
Initial payment history established
Consistent payments showing
Full year of perfect payments
Note: Results vary based on your overall credit profile. Those with no credit history often see larger gains than those repairing bad credit.
Credit Builder Loan vs. Secured Credit Card
| Feature | Credit Builder Loan | Secured Credit Card |
|---|---|---|
| Upfront Cost | Small admin fee | Full deposit required |
| Access to Funds | End of term only | Immediate spending power |
| Credit Mix | Adds installment loan | Adds revolving credit |
| Risk of Overspending | None | Possible |
| Forced Savings | Yes | No |
💡 Our Recommendation
For fastest credit building, use BOTH a credit builder loan and a secured credit card. This gives you:
- Two positive payment histories
- Better credit mix (10% of score)
- Faster score improvements
How to Maximize Results
🎯 Set Up Autopay
Never miss a payment by automating from your checking account
📱 Monitor Progress
Check your credit score monthly to see improvements
💰 Choose Affordable Payments
Pick a payment you can easily afford every month
⏰ Don't Close Early
Completing the full term maximizes credit benefit
Common Questions
Will applying hurt my credit?
Most credit builder loans only require a soft credit check, which doesn't impact your score. Some may do a hard pull, so always ask first.
What if I miss a payment?
Missing payments defeats the purpose and will hurt your credit. If you're struggling, contact the lender immediately to discuss options.
Can I pay it off early?
Yes, but it may reduce the credit-building benefit. The longer your positive payment history, the better for your score.
How much will my score improve?
Improvements vary widely. Those with no credit often see 100+ point gains, while those with existing negative marks may see 35-60 points.
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