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Personal Loans

Best Credit Builder Loans

Getting approved for a loan can be tricky if you have a low credit score—or haven’t established your credit history at all. Credit builder loans are available to help borrowers with poor or no credit history establish or boost their credit score through small, on-time payments over the course of several months.

Wondering whether a credit builder loan is right for you? We’ll walk you through the best credit builder loans available, how they work, how to apply, and their pros and cons.

The 5 best credit builder loans

Here are our five top-rated credit builder loans.

Company
Best for…
Rating (0-5)
Best for a credit-building card
5
Best for no admin fees
4.9
Best for added benefits
4.8
Best collection of products
4.6
Best for a small credit-building plan
4.5

Reviews of the best credit builder loans

We believe the best credit builder loans have a demonstrable history of helping borrowers improve their credit scores—and don’t overcharge to do so. We prioritize factors including transparency, eligibility, and customer experience. Here are our choices.

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

Best credit-building credit card: Chime®

LendEDU rating: 5.0 out of 5

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

On-time payment history can have a significant and positive effect on your credit score, and late payments can hurt it. 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 is 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

LendEDU 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.

Choose a deposit goal of $500, $1,000, or $2,000 and your preferred payback period (12 or 24 months). The flexibility is important because it affects how much you’ll pay back each month—and how much your credit score stands to improve.

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

Over the course of this sample loan, you’ll spend $576 across 24 payments, and you’ll get $500 back. So over the life of the loan, you’ll spend $76 to improve your credit score through Cheese.


Best for added benefits: Self

LendEDU rating: 4.8 out of 5

  • 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 more than 5 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 meet income requirements, 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).

Each plan has a nonrefundable $9 admin fee. Here’s a breakdown of the plans:

PlanTotal paymentsWhat you get at the end
Small Builder$600$511
Medium Builder$840$717
Large Builder$1,152$985
X-Large Builder$3,600$3,069

Because you pay an admin fee and get less money at the end of the loan than you paid into it, this loan costs you money. Think of it like the interest on a traditional loan. For borrowers without credit (or with poor credit), the cost of a Self Credit Builder loan is often worth the average 49-point credit score increase.


Best collection of products: CreditStrong

LendEDU rating: 4.6 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 Instal 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.

All three Instal accounts have a nonrefundable $15 admin fee. Here’s a breakdown of the three different Instal plans:

Monthly paymentLength of loanWhat you get at the end
$2848 months$1,010
$3836 months$1,100
$4824 months$1,000

You’ll pay more over the life of a CreditStrong Instal credit builder loan than you’ll get at the end—this is effectively the interest you pay for borrowing money. That said, at the end of the loan, assuming you made on-time payments, you walk away with:

  • A decent nest egg (excellent if you struggle with saving)
  • A boosted credit score (average of 45 points)

Best for small credit-building plan: Kovo

LendEDU 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 is reported to TransUnion, Equifax, Experian, and Innovis.

While you make payments, you’ll unlock access to credit-building courses you can use 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 do credit builder loans work?

Credit builder loans are accessible personal loans with an easy approval process designed for borrowers who need help establishing or improving their credit. Approval doesn’t usually require a hard credit pull, so you shouldn’t have trouble getting one, regardless of your credit score.

Unlike traditional loans, which involve upfront money from the lender, a credit builder loan usually does not require initial funding (though a few do).

Instead, the lender will add your monthly payments into a savings account on your behalf and report those payments to the credit bureaus. At the end of the loan, you’ll walk away with the money in the savings account—and, as long as you’ve made your payments on time, an established or improved credit score.

Here’s how it works:

  1. Apply for a loan: The application process is usually fast and easy—and online. You will need to include basic personal information in your application.
  2. Pay any fees: Even some of the best credit-building loans have a nonrefundable administrative fee. You’ll need to pay this before you can begin the credit-building program.
  3. Make on-time payments: Start making payments every month for the loan term. The lender will hold this money for you, often in a savings account or certificate of deposit, and report your monthly payments to the credit bureaus.
  4. Get the money at the end: Once you’ve completed the loan process, the lender will release an agreed-upon amount of funds to you. This is often less than you paid into the loan (the lender takes a cut), but you’ll walk away with a decent chunk of cash to fund a big purchase or establish an emergency fund. Assuming you made on-time payments, you should also have an established (or improved) credit score.

Building credit takes time, which is why these loans often last multiple years. The length of your credit history affects your credit score, so longer credit builder loans are advantageous. These longer loans also allow you to make more on-time payments, which play a major part in boosting your credit score.

Don’t expect your score to increase overnight, but you should see gradual improvements over the life of the loan.

How to get a credit builder loan

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 history, limited credit, or a poor credit score.

That said, lenders may have eligibility requirements, such as:

  • Proof of income to demonstrate that you can repay the loan
  • A clean banking history (some lenders may review your ChexSystems report)
  • An administrative fee to start the loan

Don’t just take the first credit builder loan you find. Review our list of the best credit builder loans, compare their fees and structures, and apply for the one that best suits your needs.

Pros and cons of credit builder loans

Credit builder loans offer several advantages 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 saving money, regardless of credit score.

However, be sure to consider the drawbacks as well.

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. 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, which 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. 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

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, follow these tips to ensure success:

  1. Be smart about which loan you pick: Because on-time payments are crucial, choose a loan with a monthly payment you’re confident you can afford.
  2. 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 how much it’s climbing. This will help you stay motivated.
  3. Pay your credit builder loan on time, every time: It’s imperative you’re never late when paying your credit builder loan. We recommend setting up autopay of the monthly minimum balance. Even a single late payment could cause your score to drop, especially if you don’t have much of a positive credit history to offset it.
  4. Take advantage of other resources and offers: Many credit builder loans offer educational resources to help you improve your credit score. They may also have additional products that can supplement the work you’re doing with the loan.
  5. Have a plan for the nest egg at the end: Make a plan to use the money you save responsibly, such as to pay off other debts or fund a high-interest savings account to establish an emergency fund.

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 annually with all three credit bureaus is a solid habit. It helps you watch the progress of your credit history, ensure that lenders are reporting as promised, and it may encourage you to keep up the good work.

Not sure how to check your credit? American adults now have access to a free weekly credit report from all three credit bureaus through AnnualCreditReport.

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 a positive payment history and the time the card has been opened, which should boost your score.
  • Avoid borrowing too much: You need to use credit to build credit, but be careful never to 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. Usually, these lenders only use a soft credit check, which won’t hurt your score or add an inquiry to your report. Some lenders may review your ChexSystems report, however, to understand your banking habits.

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 longer your average age of accounts will be. And if 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 one-time or monthly administrative fee and interest charges. These fees may vary based on how much you borrow and the loan term you choose. You may also be charged late fees if you miss a payment. 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 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 or certificate of deposit 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.

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.

Recap of the 5 best credit builder loans

Company
Best for…
Rating (0-5)
Best for a credit-building card
5
Best for no admin fees
4.9
Best for added benefits
4.8
Best collection of products
4.6
Best for a small credit-building plan
4.5