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Credit-building loans can improve your credit history to make qualifying for traditional credit lines easier. And because of their design, they offer a nice little nest egg once you’ve repaid them.
What is a credit-builder loan?
You can think of a credit-building loan like a savings account that requires contributions and builds your credit history.
A credit-builder loan is an installment loan, but unlike traditional loans, you don’t get any cash upfront.
Credit-building loans involve making fixed payments over a set term, such as $100 for 24 months, and the lender places the payments in a locked account. Payments are reported to the credit bureaus to help build a better credit score. Once the term is over, you get your funds back, usually minus some fees for the service.
Credit-building loans are designed for people with poor or limited credit, so institutions usually have very lenient credit score requirements or don’t check your credit score when you apply.
The idea with these loans is that by the end of the term, you’ve built a credit history and saved up a little nest egg.
Hot tip: Compare credit-building loans carefully
Credit-building loans will involve a monthly payment. In addition, some credit-building services require a membership fee — this means you might be paying a monthly fee for the loan itself, and a membership fee for the service.
5 credit-builder loans to build credit
Big banks like Chase, Wells Fargo and Bank of America typically don’t offer credit-building loans. To find a credit-builder loan, you’ll likely have to look at fintech companies, small banks or local credit unions.
Self is a fintech company that offers four different Credit Builder Accounts, each with a 24-month duration and no hard credit check. You choose a monthly payment of either $25, $35, $48 or $150. Depending on your loan choice, you save between $511 to $3,069 (minus interest and fees). However, there's a fee for paying with a debit card. Self also offers rent reporting at no cost, and some credit-building credit cards.
Fee
From $0 per month
Self is a fintech company that offers four different Credit Builder Accounts, each with a 24-month duration and no hard credit check. You choose a monthly payment of either $25, $35, $48 or $150. Depending on your loan choice, you save between $511 to $3,069 (minus interest and fees). However, there's a fee for paying with a debit card. Self also offers rent reporting at no cost, and some credit-building credit cards.
Pros
Reports to three major bureaus
No credit check
Flexible payment options
Many other credit-building options
Cons
Debit card payment fee of $1.20 to $4.75
Charges APR
Annual Percentage Yield (APY)
N/A
Fee
From $0 per month
The secured Self Visa® Credit Card is issued by Lead Bank or First Century Bank, N.A., each Member FDIC.
Credit Builder Accounts & Certificates of Deposit made/held by Lead Bank, Sunrise Banks, N.A., First Century Bank, N.A., each Member FDIC. Subject to credit approval.
Results vary. You may not receive an improved credit score. Not all lenders use scores impacted by rent reporting. Not all bill payments may be eligible.
$0 annual fee for the first year only, $25 annual fee thereafter. Variable APR of 27.99%. Offer valid for new customers only.
The secured Self Visa® Credit Card requires an active Self Credit Builder Account and qualification based on other eligibility criteria including income & expense requirements. Criteria subject to change.
Ava is a fintech company that offers a credit-building loan called the Credit Builder Account. There's no hard credit check or any APR. The loan has a $30 monthly payment for 12 months, and you get the full $360 back once the term is over. Ava reports to all three major credit bureaus and can report payments within 24 hours so you can see quick results. But it's not free. You'll need the Ava paid subscription plan for $10 per month, or the annual plan for $60/year.
Fee
$10. per month
Ava is a fintech company that offers a credit-building loan called the Credit Builder Account. There's no hard credit check or any APR. The loan has a $30 monthly payment for 12 months, and you get the full $360 back once the term is over. Ava reports to all three major credit bureaus and can report payments within 24 hours so you can see quick results. But it's not free. You'll need the Ava paid subscription plan for $10 per month, or the annual plan for $60/year.
MoneyLion's Credit Builder Plus Membership offers 12-month credit-builder loans of up to $1,000, with no credit check. It reports payments to the three major credit bureaus, and once you pay off the amount, it releases the funds to you. However, MoneyLion requires a monthly subscription fee of $19.99, separate from the monthly payments you'd make on the credit-builder loan.
Fee
$19.99 per month
MoneyLion's Credit Builder Plus Membership offers 12-month credit-builder loans of up to $1,000, with no credit check. It reports payments to the three major credit bureaus, and once you pay off the amount, it releases the funds to you. However, MoneyLion requires a monthly subscription fee of $19.99, separate from the monthly payments you'd make on the credit-builder loan.
Pros
No credit check
No interest charges
Flexible 12-month options
Cons
Requires $19.99 monthly fee
Annual Percentage Yield (APY)
N/A
Fee
$19.99 per month
Fee
$19.99 per month
4. Republic Bank Credit Builder & Savings Program
Republic Bank Credit Builder & Savings Program
Republic Bank is an FDIC-insured traditional bank. It offers the Credit Builder & Savings Program with multiple loan amounts and term options. Amounts range from $500 to $1,500, and terms can be either 12, 18 or 24 months. The smallest monthly payment advertised is $22.56 on the $500 credit-builder loan for 24 months. Republic places the funds in a certificate of deposit and charges an APR of around 7.25% to 7.75%, which you pay as a fee for the service. The credit score requirements are unclear but are likely lenient, as these products are designed for those with limited credit histories.
Fee
$0 per month
Republic Bank is an FDIC-insured traditional bank. It offers the Credit Builder & Savings Program with multiple loan amounts and term options. Amounts range from $500 to $1,500, and terms can be either 12, 18 or 24 months. The smallest monthly payment advertised is $22.56 on the $500 credit-builder loan for 24 months. Republic places the funds in a certificate of deposit and charges an APR of around 7.25% to 7.75%, which you pay as a fee for the service. The credit score requirements are unclear but are likely lenient, as these products are designed for those with limited credit histories.
Pros
No membership fees
Multiple loan options
Transparent options and APR
Cons
Unclear credit score requirements
Charges APR
Annual Percentage Yield (APY)
N/A
Fee
$0 per month
Fee
$0 per month
5. Credit Karma
Credit Karma Credit Builder
Largely known for its credit-monitoring service, Credit Karma also offers credit-building loans with its Credit Karma Money Credit Builder. You need to open the digital Credit Karma Money Spend account. You choose how much you want to contribute to the Credit Builder account, which can be as low as $10 per paycheck, and the funds are sent to your locked Credit Builder savings account every pay period. Credit Karma then reports the payments to the credit bureaus. The funds can be sent from your Credit Karma Money Spend account, or another linked bank account. Once you've saved at least $500, Credit Karma releases the funds to you.
Fee
$0. per month
Largely known for its credit-monitoring service, Credit Karma also offers credit-building loans with its Credit Karma Money Credit Builder. You need to open the digital Credit Karma Money Spend account. You choose how much you want to contribute to the Credit Builder account, which can be as low as $10 per paycheck, and the funds are sent to your locked Credit Builder savings account every pay period. Credit Karma then reports the payments to the credit bureaus. The funds can be sent from your Credit Karma Money Spend account, or another linked bank account. Once you've saved at least $500, Credit Karma releases the funds to you.
Pros
No subscription fees
Choose monthly contributions
Designed for poor credit
Cons
Good credit borrowers may not be eligible
Requires Credit Karma digital account
Requires direct deposit of at least $750
Annual Percentage Yield (APY)
N/A
Fee
$0. per month
Fee
$0. per month
Is a credit-builder loan a good idea?
Credit-building loans can be worth it if you have poor credit and want a relatively low-risk way to start building credit history. However, like with any loan product, if you miss your payments, the lender may report those negative marks to the credit bureaus — so make sure you can easily afford the payments.
Pros
Get your cash back. Funds are released to you by the end of the term minus interest and fees.
Easy to qualify for. Most credit-building loans don’t check your credit score or have very low credit score requirements.
Improve your credit score. Lenders report credit-building loans to the credit bureaus, so timely payments can increase your credit score.
Short terms. Most credit-building loans have terms under two years, so they’re not long-term commitments.
Low payments. Credit-building loans normally have monthly payments under $100 or so, which can make them affordable for most people.
Cons
Funds are locked. You won’t get any funds upfront, and you can’t access your funds until the end of the term.
Must be responsible. If you miss credit-builder loan payments, you risk harming your credit score. Make sure you can afford the loan before taking it on.
Alternatives to credit-builder loans
If you aren’t sure about credit-builder loans, consider other options to build credit.
Debit-credit cards. These hybrid cards work a lot like a credit card and checking account in one and often don’t charge APR. Your bank account balance sets the card’s limit, so you only spend what’s in your account, helping you avoid excessive debt.
Secured credit cards. These cards work like regular credit cards, but they’re secured by a cash deposit. Secured credit cards typically have low credit score requirements and are often designed to be someone’s first credit card.
Personal loans. These unsecured installment loans offer a lump sum for vacations, home improvements, debt consolidation and more. They may require good credit to quality, but there are personal loans for poor credit.
Credit-building apps. Consider credit-building apps such as Experian Boost® and StellarFi, which provide rent reporting and other credit-building tactics to bolster your credit history.
Bottom line
A credit-builder loan can be a great and safe way to improve your credit score. However, like with any loan, it can do more damage than good if you don’t make your payments on time. If credit-builder loans aren’t for you, there are many other ways to build your credit history.
Frequently asked questions
You'll likely see an impact on your credit score and history as soon as one month. Most creditors report loans and payments monthly. Depending on your current credit score, you may see a marked improvement in a few short months, provided you stay on top of the payments.
It depends on your current credit score. You may see a boost anywhere from 40 to 100 points with timely payments by the time the credit-builder loan is over.
If you really need to pay it off early, you can. Most credit-building loans we've seen don't have prepayment penalties, but ask the lender to be sure.
However, the point with credit-builder loans is to get as many on-time payments reported to the credit bureaus as you can. By paying it off early, you reduce the number of payments added to your credit file, therefore defeating the purpose of a credit-building loan.
Bethany Hickey is the banking editor and personal finance expert at Finder, specializing in banking, lending, insurance, and crypto.
Bethany’s expertise in personal finance has garnered recognition from esteemed media outlets, such as Nasdaq, MSN, Yahoo Finance, GOBankingRates, SuperMoney, AOL and Newsweek. Her articles offer practical financial strategies to Americans, empowering them to make decisions that meet their financial goals. Her past work includes articles on generational spending and saving habits, lending, budgeting and managing debt.
Before joining Finder, she was a content manager where she wrote hundreds of articles and news pieces on auto financing and credit repair for CarsDirect, Auto Credit Express and The Car Connection, among others.
Bethany holds a BA in English from the University of Michigan-Flint, and was poetry editor for the university’s Qua Literary and Fine Arts Magazine.
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Thanks for getting in touch with Finder. I’m sorry to hear about the trouble you are having.
The main reason that you weren’t approved for a payday loan is that you don’t meet their eligibility requirements. Thus, it would be a good practice to make sure that you’ve read the relevant T&Cs or PDS of the loan products before making a decision. Moreover, check the eligibility requirements as well and consider whether the product is right for you.
Aside from tips, you can also learn on that page how you can increase your chances of approval, the factors to consider when applying for a personal loan, and others.
I hope this helps. Should you have further questions, please don’t hesitate to reach us out again.
A good credit score falls in the 670 to 749 range. A credit score of 750 and above is considered very good or excellent.
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Hello! Why can’t I get a payday loan?
Hi Shashana,
Thanks for getting in touch with Finder. I’m sorry to hear about the trouble you are having.
The main reason that you weren’t approved for a payday loan is that you don’t meet their eligibility requirements. Thus, it would be a good practice to make sure that you’ve read the relevant T&Cs or PDS of the loan products before making a decision. Moreover, check the eligibility requirements as well and consider whether the product is right for you.
To improve your chance of getting approved, please read our guide, “7 tips to avoid getting rejected for a personal loan.”
Aside from tips, you can also learn on that page how you can increase your chances of approval, the factors to consider when applying for a personal loan, and others.
I hope this helps. Should you have further questions, please don’t hesitate to reach us out again.
Have a wonderful day!
Cheers,
Joshua