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Personal Loans

Best Credit Builder Loans

Many financial institutions offer credit builder loans. These loans can have different interest rates, loan amounts, fees, and payment rules. 

Here are some of our top picks

  • Best for added benefits: Self
  • Best credit-building card: Chime
  • Best for no admin fees: Cheese
  • Best collection of products: CreditStrong
  • Best for small credit-building plan: Kovo

Building your credit score is one of the most important steps you can take to improve your financial future. Lenders use your credit score to determine whether you’re a trustworthy borrower, so a bad credit score (or a limited credit history) could limit your access to certain financial products.

Building up your score can be difficult, though, especially when you can’t get the financial products you need to build your credit because you lack the credit necessary to get those products in the first place. This is where a credit builder loan can help you boost your credit and save for the future.

Here’s a look at the best credit builder loans available and how they can help you get started on your path toward a new and improved credit score.

Best for added benefits: Self

Editorial rating: 4.8 out of 5

  • Choose from 4 credit builder plans
  • Payments are reported to all 3 credit bureaus
  • Track your credit score as it changes over time
  • No hard credit check when applying

Self, formerly known as Self Lender, focuses on helping borrowers build credit and savings to reach financial goals. Since its founding in 2016, Self has provided a credit-building solution to over 4 million individuals.

Its main product is its credit builder loan, but it doesn’t stop there. If you open a credit builder account with Self, make three on-time monthly payments, have $100 or more in savings progress, and have an account in good standing, you’ll be eligible for the Self Visa Credit Card. With that, you’ll enjoy new benefits and no additional upfront costs.

To start with Self, you’ll pick one of four plans. The plans are similar but allow you to choose how much money you want to commit to your credit building journey. There is no hard credit check to apply, and all loans are paid off in 24 months (but you can cancel at any time and get your savings back, minus interest and fees).

Here’s a breakdown of the plans:

Small BuilderMedium BuilderLarge BuilderX-Large Builder
Admin. fee$9$9$9$9
Monthly payment$25$35$48$150
Term length24 months24 months24 months24 months
Returned money*$520$724$992$3,076
Final cost$89$125$169$533
Get StartedGet StartedGet StartedGet Started

* This is the amount you receive at the end if you make on-time payments.


Best credit-building credit card: Chime®

Editorial rating: 5 out of 5

  • Build credit with everyday purchases
  • No annual fee or interest
  • No credit check to apply

Chime is a financial technology company, not a bank. Banking services and debit card provided by The Bancorp Bank N.A. or Stride Bank, N.A.; Members FDIC. The secured Credit Builder card issued by Stride Bank, N.A.

On-time payment history can have a significant and positive effect on your credit score, while late payments can seriously harm your credit score. Chime reports all your activities to Transunion, Experian, and Equifax. The impact on your credit may vary because credit bureaus determine credit scores based on factors including the financial decisions you make with other financial services organizations.

Chime is best-known for its online checking and savings accounts. But in 2020, it added to its portfolio of financial products with its Chime Credit Builder Secured Visa Credit Card.

To use the card, just transfer money from a Chime checking or savings account. Money added to Credit Builder will be held in a secured account as collateral for your Credit Builder Visa card, which means you can spend up to this amount on your card. This is money you can use to pay off your charges at the end of every month.


Best for no admin fees: Cheese

Editorial rating: 4.9 out of 5

  • No administrative or membership fees
  • No credit check to apply
  • Available in 43 states*

* Not available in Alabama, Indiana, Kentucky, Nevada, Vermont, Washington, or Wisconsin.

Cheese is a company that helps individuals build credit in three simple steps: 

  1. Apply for a credit builder account: There is no credit check, so your credit history won’t affect your chances of approval. 
  2. Make on-time payments, which Cheese reports to all three credit bureaus. 
  3. Get your principal back, minus the interest.

Cheese claims to help reduce your perceived credit risk in the eyes of the three credit bureaus when you make on-time payments by improving your payment history, length of credit history, and account mix. These three factors make up 60% of your credit score.

Here’s an example of the plan if you have an APR of 12% (APR varies by state) and open a $500 loan for 24 months:

Cheese credit builder loan
Admin. fee$0
Monthly payment$24
Term length24 months
Returned money*$500
Final cost$76
Get Started

* This is the amount you receive at the end if you make on-time payments.


Best collection of products: CreditStrong

Editorial rating: 4.4 out of 5

  • Offers 3 credit builder loan plans and 2 other credit building products
  • Accounts are FDIC-insured
  • No hard credit check to apply

CreditStrong offers several credit-building products. We only focus on its credit builder loan here, but the company also offers revolving lines of credit and large installment loans that can help you build credit.

A CreditStrong credit builder loan comes in three sizes. The option you choose will depend on how much money you want to commit, as well as how long you want to spend repaying your loan.

Here’s a breakdown of the three different plans:

$28/month$38/month$48/month
Admin. fee$15$15$15
Monthly payment$28$38$48
Term length48 months36 months24 months
Returned money*$1,010$1,100$1,000
Final cost$334$268$152
Get StartedGet StartedGet Started

* This is the amount you receive at the end if you make on-time payments.


Best for small credit-building plan: Kovo

Editorial rating: 4.5 out of 5

  • Your payments unlock credit building courses
  • No credit check

Kovo helps you build credit through a small installment plan. You’ll pay $10 per month for 24 months, which will be reported to TransUnion®, Equifax®, Experian®, and Innovis®.

While you make payments, you’ll unlock access to credit-building courses that can be used in other areas of your financial life. If you make four on-time monthly payments, you’ll be eligible for other loan offers through the Kovo platform. Some of these offers can result in up to 1% cash back.


How we chose the best credit builder loans

LendEDU has evaluated companies since 2020 to help our readers find the best credit builder loans. Our most recent evaluation consisted of 11 companies and 17 data points for each, resulting in 187 data points in our analysis.

These data points fell under 10 categories: transparency, eligibility requirements, rates, repayment terms, loan amounts, fees, customer experience, company history, credit benefits, and financial support benefits.

How do credit builder loans work?

Credit builder loans are accessible personal loans with an easy approval process. They’re designed for borrowers who need to build their credit. Whether you don’t yet have a strong credit history or have had problems with your credit in the past, you will likely get approved for one of these score-building loans.

In most cases, your credit builder loan will be for a small amount; many providers limit these loans to $1,000 or $2,000, for example. You don’t get access to the funds right away, in most cases. Instead, the lender holds the money in a separate savings account until you repay the loan in full, at which time the funds will be released. 

You’ll still make monthly payments on your credit builder loan, based on your interest rate and amount borrowed. As you do, the lender will report your monthly payments to the three credit bureaus: Equifax, Experian, and TransUnion. Once you’ve repaid the entire borrowed amount, the lender will return the funds it deposited in your savings account, and you’ll have a strong payment history on your credit.

Because you repay your loan before gaining access to the money—or because the cash in your savings account secures the loan—lenders assume no risk by giving you a credit builder loan. 

You can get approved even with:

  • No credit
  • A limited credit history
  • A poor or no credit score

These loans encourage saving money while building your credit history. You’ll have access to a nest egg once you repay the loan. You can use this cash to fund a big purchase, pay off other debt, or as an emergency fund.

Pros and cons of credit builder loans

Many advantages exist to use a credit builder loan when trying to establish credit for the first time or overcome a negative credit history. Many consumers use these products as a tool for building credit and establishing savings, regardless of credit score.

Pros

  • Available to consumers with all types of credit scores

    Credit builder loans are available to poor-credit borrowers, fair-credit borrowers, or even no-credit borrowers. Whether you have a limited credit history or none at all, you’re likely to get approved for this low-risk product.

  • Build your score fast

    Credit builder loan terms often last several years, but your credit-building efforts will have an effect right away. Most credit builder lenders report on-time payments to all three bureaus, helping grow your score and payment history.

  • Build up a savings account

    You don’t often get access to your loan funds right away. Instead, the lender will stash the money in a dedicated savings account that secures your loan. After you’ve made all the required monthly payments, the cash is yours.

Cons

  • You could hurt your credit if you don’t pay on time

    The point of a credit builder loan is to improve your credit score, but this will backfire if you fail to make on-time payments or miss your payment due date altogether. You should not take out a credit builder loan unless you’re confident you’re ready to pay your loan when it’s due.

  • You could pay high fees

    Some credit builder loans charge application fees. If you don’t pay your bill by the due date, you will likely also need to pay a late fee. These fees could add significant costs.

  • You may pay interest on money you don’t yet have access to yet

    In most cases, the interest rates on credit builder loans are under 10%. But, that’s not always the case. And paying interest on money you can’t access until you repay the loan can be frustrating and feel like a waste of money.

Tips for using credit builder loans to improve your credit

As we mentioned, credit builder loans can help your credit—but they could also hurt it if you don’t make payments on time. If you’re taking out a credit builder loan to boost your score, these tips can help ensure your efforts are successful:

  • Monitor your credit report to keep tabs on progress:Check your credit once a month as you pay off your credit builder loan to ensure lenders are reporting your positive payment history. You can also check your credit score to see whether it’s climbing. This will help you stay motivated.
  • Pay your credit builder loan on time, every time: It’s imperative you’re never late when paying your credit builder loan. Even a single late payment could cause your score to plummet, especially if you don’t have much of a positive credit history to offset it.
  • Pay off your loan in full by the balance due: You also must ensure you’ve budgeted enough to pay the full loan amount by the repayment deadline.

It won’t help build your credit, but another big tip is to have a plan for your savings at the end of your loan term. You’ll get access to the money you’ve made monthly payments on for months. How will you use it? Consider whether you should pay off high-interest debt, cover a big purchase, or fund an emergency savings account for your family with the cash.

How can I check my credit to ensure my payment history is correct?

Whether you’re considering a credit builder loan or have been paying toward one for years, checking your credit is a solid habit. It helps you watch the progress of your credit history, ensure that lenders are reporting as promised, and may encourage you to keep up the good work.

American adults have access to at least one free credit report from each of the three reporting agencies, every year. You can request your free credit reports through AnnualCreditReport.com. Be careful of imposters because this is the only government-approved site.

You can also sign up for a free credit monitoring service. These apps and platforms will send you an update monthly or as new reports are added to your credit report and may give you a proprietary credit score along the way to show your progress.

Other ways to improve your credit

Credit builder loans are one option to improve your credit, but they aren’t the only way to raise your score. 

You may also consider the following:

  • Apply for a secured credit card: Secured credit cards are different from credit builder loans, giving you a revolving line of credit like a typical credit card account. You can borrow up to your credit limit, pay it off, and charge more. You’ll often put money equal to your credit limit in a special security deposit account with the creditor to secure or guarantee the loan. 
  • Become an authorized user on someone else’s credit card: If a trusted person in your life has good credit, they could help you boost your score by adding you as an authorized user to one of their cards. This card’s history should show up on your credit report. You’ll get the benefit of the positive payment history and time the card has been open, which should boost your score.
  • Avoid borrowing too much: You need to use credit to build credit, but be careful to never max out your credit cards. This will harm the credit utilization component of your credit score. A lower credit utilization ratio results in a better score because it shows responsible use.

FAQ

We’ve answered common questions about credit builder loans.

Are there credit builder loans with no credit check? 

Many credit builder loans won’t conduct a hard pull on your credit. The lender only uses a soft credit check, which won’t hurt your score or add an inquiry to your report.

Do credit builder loans work?

The payment history aspect of your credit score is the single biggest factor in your score. A credit builder loan helps you build a positive payment history with each on-time monthly payment, establishing and increasing your score along the way.

How can a credit builder loan affect my credit score?

The impact of a credit builder loan is threefold. Each month, your on-time payment will help improve your credit report’s payment history, the single biggest factor of your credit score. 

The longer you hold the loan, the better your average age of accounts will be. Iif you haven’t had an installment loan on your credit report, a credit builder loan will improve your credit mix, which takes into account the types of credit accounts you’ve managed.

How much does a credit builder loan cost?

Your credit builder loan may be subject to costs including a monthly administrative fee and interest charges. These fees may vary based on how much you borrow and the loan term you choose. Not all lenders charge these fees, so it’s important to shop around and weigh your options before choosing a loan product.

Can you get credit builder loans for bad credit?

Credit builder loans are designed for borrowers who need to, well, build credit. Whether you have no credit history or bad credit, these low-risk loans are often available. Lenders may not even conduct a credit check; the funds are often held in a savings account and used to secure the debt, so lenders are more willing to approve borrowers with poor or limited credit.

Are there credit builder loans that give you money?

Most credit builder loans will put your borrowed funds in a dedicated savings account until the note is repaid. Some lenders, however, may give you access to a portion of the funds upfront. With those products, you may pay more in fees and interest, or the lender may conduct a hard credit check before giving you the money.