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.

Getting accepted for credit cards and loans won’t be easy if you have poor credit. Lenders are more likely to turn you away, or if you’re accepted, you’ll usually be offered a higher interest rate compared to someone with good credit.

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 a loan designed to help those with low credit scores or a lack of credit history rebuild their creditworthiness. Provided you make all your repayments in full and on time, you can prove to lenders that you are responsible with credit, and your credit score should improve over time.

A credit builder loan typically lets you borrow between £100 and £5,000, which is less than a conventional personal loan. However, the amount you can borrow depends on the provider. You can usually find credit builder loans through online lenders or credit unions – high street banks usually won’t offer them.

How do credit builder loans work?

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 around 12 months. 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 reached the term’s end.

As you make your repayments each month, your provider reports 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 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 is also 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 varies 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. 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 can you get a credit builder loan?

You can’t usually 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 then locks away a 0% APR loan for that amount in your LOQBOX Save account. Each payment you make gets added to your credit history. You can access your money at any time or after the 12 months. 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 3 plans to choose from:

  • Step. Here, you take out 2 loans of £200 per year, and each one is paid off over 6 months. There’s a £7 a month membership fee.
  • Core. This lets you take out 2 loans of £300 per year, and again, each one is paid off in 6 monthly instalments. There’s a £10 a month membership fee.
  • Plus. With Plus, you can take out 2 loans of £500 per year, and each one is repaid over 6 months. There’s a £12 a month membership fee.

Read our Creditspring review

Credit unions

Credit unions are community savings and loan providers, and you can often borrow up to £3,000. The interest you’ll pay depends on the amount you want to borrow and the loan’s length.

To join a credit union, you 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 boost your credit score, and these can be worth exploring before you apply for a loan. For example:

  • Make sure you’re on the electoral roll. Lenders use this to verify your name and address.
  • Regularly check your credit file. 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.
  • Pay bills on time. This includes your rent or mortgage, as well as credit repayments. This helps to show lenders that you’re responsible with your finances.
  • Space out credit applications. When you apply for credit, make sure to space out your applications by at least 3 to 6 months. Too many applications in a short period can make you look desperate for credit, and you might find it harder to get accepted.

Bottom line

If you have poor credit, you might want to consider applying for a credit builder loan. Used sensibly, they can be an easy way for you to improve your credit score over time and increase your chances of getting accepted for better deals in the future.

However, keep in mind that some credit builder loans come with fees, so they won’t necessarily be the cheapest option out there. They are also unlikely to be the best choice if you need to borrow funds fast, as you won’t always get access to the cash immediately.

Frequently asked questions

We show offers we can track - that's not every product on the market...yet. Unless we've said otherwise, products are in no particular order. The terms "best", "top", "cheap" (and variations of these) aren't ratings, though we always explain what's great about a product when we highlight it. This is subject to our terms of use. When you make major financial decisions, consider getting independent financial advice. Always consider your own circumstances when you compare products so you get what's right for you. Most of the data in Finder's comparison tables has the source: Moneyfacts Group PLC. In other cases, Finder has sourced data directly from providers.
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Written by


Rachel Wait is a freelance journalist and has been writing about personal finance for more than a decade, covering everything from insurance to mortgages. She has written for a range of personal finance websites and national newspapers, including The Observer, The Mail on Sunday, The Sun and the Evening Standard. Rachel is a keen baker in her spare time. See full bio

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