Around 30% of American adults have a “fair” or “poor” credit score – a credit score below 670. Another 20% of Americans are “credit invisible,” meaning they have no credit history or credit score.
That’s half of Americans, and it’s unfortunate because your credit score determines what you’ll pay for a home, car, personal loan, or even home or auto insurance.
If you need to rebuild credit for whatever reason, a credit builder loan can give you a boost. Here are the 10 best options.
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Most popular credit-builder loans
If your credit score is less-than-perfect and you want to boost it, credit-builder loans are an easy way to do it. They’re relatively low cost, and at the end of the loan term, your money is returned in a lump-sum payment. If you’re looking for options, here are ten of the best options.
Best overall credit-builder loan
Self Financial, Inc.
- Offers credit-builder loans and a secured credit card
- Loan terms range from 12 to 24 months
- Reports to all three major credit bureaus
- No upfront security deposit required
- No credit score required
- No hard inquiry
- One-time $9 fee to open an account
- Monthly payments range from $25 to $150
- APRs between 15.72% to 15.97%
- Overwhelmingly positive reviews online
- Successfully helped 1+ million consumers build credit
- Option to apply for a secured credit card after three months of on-time payments and a positive balance of at least $100. The card is linked to the credit-builder account and also helps build credit.
Best online loan options
Credit Strong
- 7 plans to choose from to build credit without the need for a credit card
- Monthly payments from $15 to $110
- 120-month maximum loan term
- APR ranges from 7.75% and 14.89%
- Free access to FICO 8 score
- Administrative fee from $8.95 to $25, depending on the plan
- Not available in Wisconsin or Vermont.
- No charge for early cancellation
MoneyLion
- Mobile banking app with Credit Builder Plus Loans
- Annual APR from 5.99% to 29.99%
- $1,000 maximum loan amount
- Borrowers may receive a portion of the loan immediately, similar to a traditional loan
- Loan terms up to 12 months
- Weekly, biweekly and monthly installment options
- Over half of members saw an average credit score increase by 42+ points in two months
- Mobile app for checking loan balance and setting up automated payments
- No credit score required
- No hard inquiry
- $19.99 monthly membership fee
Credit union loans
Metro Credit Union
- $500 to $3,000 loan amounts
- Maximum loan term is 24 months
- APRs start at 4.10%
- Must be a member of the credit union to qualify
- Balance in savings account accrues interest as you make payments.
RBFCU
- $300 to $2,500 loan amounts
- 6- to 36-month terms
- APR range of 7.7% – 17.9%
- No fees besides interest
- Option for early repayment, but doing so will not help build credit
- Portion of the interest is paid back in dividends into the savings account to further grow.
Digital Federal Credit Union
- $500 to $3,000 loan amount
- 12- to 24-month loan terms
- Fixed APR of 5%
- Some interest returned in dividends to the savings account to help build savings
- Available nationwide
- Hard credit inquiry could impact your credit score
USAlliance Financial
- Terms range from 12 to 24 months, ranging from $500 to $2,000. Qualifications, terms, and rates are based on qualifying criteria such as income and credit determined when opening an account.
- Membership is not a requirement to apply. But you will need to establish membership once U.S. Alliance Financial provides you with the approval.
- There are many different ways to qualify for membership at U.S. Alliance, including association, employer and the location where you live/work/or worship.
If you do not qualify, you can join one of their partnership associations for free during the application process.
Bank loans
Hawthorn Bank
- $500 to $2,500 loans
- 12, 18 or 24-month payment periods with monthly installments
- Average APR is 6.575%
- $25 origination fee
- $25 VISA Gift Card if you successfully participate in their financial education program
Republic Bank
- $500 to $1,500 loans
- 12, 18 and 24-month loan terms
- APR ranges from around 9% to 9.5%, depending on the terms and loan amount
- Money is placed in a certificate of deposit and earns interest for the duration of the loan
- Borrowers may withdraw the funds at the end or leave them to accrue interest
- Monthly loan payments starting at $21.89
- $10 processing fee
Sunrise Bank
- Loan terms are 12 months or 18 months.
- The loan funds are placed in a CD, and monthly repayments are approximately $50.
- APRs ranging from 15% to 21%, depending on loan terms
- SSN or ITIN is required for loan applications. Individuals using an ITIN must apply in person.
- Certificate of Deposit and loan rates may vary, and fees may apply. If you do not have a Sunrise checking or savings account, they will provide you with a check.
What is a good interest rate for a credit-builder loan?
The APR range is wide. It can be as low as 4% or as high as 21%, depending on the amount of the loan and the repayment term. Generally, credit unions offer the lowest rates, but may have specific membership requirements.
Is a credit builder loan worth it?
There are some costs associated with credit builder loans, but they can be a good way to improve your credit score — and build a little bit of an emergency fund in savings. However, they will only be effective if you make all of your scheduled payments on time, and you won’t be able to access your money until the loan term is complete.
Can you pay off a credit builder loan early?
Yes, but you’ll need to pay the entire remaining loan balance, and you’ll lose out on the potential to improve your credit score.
How fast do credit-builder loans build credit?
Building credit takes time and involves various factors such as:
- Borrower’s current credit score
- Any other open lines of credit or loans
- Average age of accounts
- Derogatory marks like foreclosure or bankruptcy
For those with no existing debt or credit score, it could take anywhere from two to six months to start building credit. For people with poor credit or delinquent accounts, it may take longer.
To help build credit faster, make on-time payments, let open accounts age to build credit history and get a mix of credit (loans, lines of credit, etc.)
READ MORE: Everything you need to know about credit-builder loans
How much do credit-builder loans cost?
The cost of a credit-builder loan depends on a few variables, including:
- Most loans range from $200 to $2,000. Longer loan terms or higher amounts accrue more interest or may have higher monthly payments.
- APR varies from around 5% to 12%, depending on the lender, loan term and loan amount.
- Some lenders charge an upfront, one-time administrative or loan origination fee. Others charge a monthly fee. Longer loan terms may mean more fees.
- Some lenders charge for late payments.
Before agreeing to get a credit-builder loan, determine how much it will cost and whether it fits your budget.
The bottom line
Creditworthiness is important, but it can be difficult to build a solid credit history when you’re struggling with debt. A credit-builder loan can help you establish credit and get your financial situation under control.
