Credit builder loans explained

Using a credit builder loan can help you to improve your credit score over time. Here’s how they work.

Late repayments can cause you serious money problems. See our debt help guides.

If you have poor credit, getting accepted for financial products such as loans and credit cards can be a challenge.

As a general rule, the most competitive deals will be reserved for those with excellent credit scores. By comparison, if your credit score is below par, you’re more likely to be turned away or, if you are accepted, you’ll pay a much higher rate of interest.

Fortunately, credit builder loans offer a solution for those with poor credit – used responsibly, they can help you to improve your credit score and get accepted for better deals in the future.

What is a credit builder loan?

A credit builder loan is simply a loan designed for those with low credit scores or a lack of credit history. They often work slightly differently to conventional personal loans.

Usually, with a credit builder loan, you agree to borrow a set amount of money and repay it in fixed monthly instalments over a set term – usually 12 months or more. However, unlike conventional loans, you won’t always have access to these funds straight away. Instead, you’ll get access once you’ve made all your repayments and you’ve reached the end of the term.

As you make your repayments each month, your provider will report these to credit reference agencies (Experian, Equifax and TransUnion), and you should start to see an improvement in your credit score after a few months. Repaying the full amount on time will help to demonstrate to other lenders that you’re a responsible borrower and you could get access to better rates in the future.

However, keep in mind that should you miss a repayment, this will also be reported to the credit reference agencies which would harm your credit score.

Pros and cons of credit builder loans


  • Each monthly repayment is reported to credit reference agencies
  • As long as you keep up with your repayments, your credit score will improve over time
  • You should be able to access more competitive deals in the future


  • Borrowing amounts are often relatively small
  • You may not receive the money until you’ve made all your repayments
  • You can usually only apply for one from an online provider or credit union
  • Eligibility criteria will vary depending on the provider

Credit builder loans vs credit builder cards

As well as credit builder loans, you can also apply for credit builder credit cards. Rather than borrowing a set amount of money, as you would with a loan, credit builder credit cards let you borrow up to your credit limit and you can then repay this amount in flexible, rather than fixed, monthly payments.

Credit builder credit cards can be more suitable if you want a revolving credit line that lets you access funds as and when you need them. However, the downside of credit builder cards is that they typically charge high rates of interest, making them an expensive way to borrow if you don’t pay off your balance in full each month.

Credit limits are also typically lower compared to standard credit cards – often around £200 to £1,500 – though this can increase after a few months if you keep up with your monthly repayments.

Where to get a credit builder loan

You won’t usually be able to get a credit builder loan from a mainstream bank or building society. But you can apply for one with providers such as:


With LOQBOX, you choose to save between £20 and £200 each month for 12 months. LOQBOX will then lock away a 0% APR loan for that amount in your LOQBOX Save account. Each payment you make gets added to your credit history and you’ll be able to access your money at the end of the 12 months. Note that at this point, you will be asked to open an account with one of LOQBOX’s partner banks so that your money can be transferred. Alternatively, you can pay £30 and have the money paid into an existing account.

Read our Loqbox review


Credito works as a 12-month subscription service. Each month you pay the £19.99 subscription fee, this is reported to credit reference agency TransUnion. At the end of the 12 months, your credit builder account will close and your credit score should have improved.

Read our Credito review


Creditspring offers a credit builder loan of up to £1,000 that you repay monthly. There are three different plans to choose from:

  • Step. Here, you can take out 1 loan of £100 and 1 loan of £200 per year, and pay it off each time over 6 monthly payments. There’s a £5 a month membership fee.
  • Core. Here, you can take out 2 loans of £250 per year, and pay it off each time over 6 monthly payments. There’s an £8 a month membership fee.
  • Plus. Here, you can take out 2 loans of £500 per year, and pay it off each time over 6 monthly payments. There’s a £10 a month membership fee.

Read our Creditspring review

Credit unions

Credit unions are community savings and loan providers and you can often borrow amounts of up to £3,000. The amount of interest you pay will depend on the amount you want to borrow and the length of the loan.

To join a credit union, you will usually need to share a common bond with other members. This can mean living in the same area or being in a certain profession – such as the NHS Credit Union. You can find your nearest one on the Find Your Credit Union website.

Other ways to improve your credit score

There are plenty of other steps you can take to give your credit score a boost and these can be worth exploring before you apply for a loan. A good first step is to make sure you’re on the electoral roll as lenders use this to verify your name and address. It’s also sensible to regularly check your credit file and make sure it contains no mistakes. If you spot any errors, including a misspelt name or incorrect address, get them corrected as soon as possible.

Another easy way to improve your credit score is to make all bill payments, including your rent or mortgage, as well as credit repayments on time. This will help to show lenders that you’re responsible with your finances.

Finally, make sure that when you do apply for credit, you space out applications by at least 3 to 6 months. Too many applications in a short period of time can make you look desperate for credit and you might find it harder to get accepted.

Frequently asked questions

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