What is a Credit Builder Loan + 6 Best Options

What are your options if you have no credit history and want to get a credit card or want to start building your credit? Having no credit history is also known as being “credit invisible,” a designation that affects 26 million Americans.

A credit builder loan may be able to help. They are designed for those with little to no credit history to help build a starting credit score or boost a score that’s less than perfect.

What is a credit-builder loan?

These are small-limit loan amounts typically less than $1,000, where the money is set aside for you in a secured savings account or CD (certificate of deposit) while you pay off the loan. These loans allow you to build credit while you save money. You make monthly payments with interest for a specified loan term, and once it is paid, the CD unlocks, and you receive the funds, minus any interest and administration fees.

These loans are available at a bank, credit union (a shared secured loan) or through an online lender. The lender reports your monthly activity and payment to the three major credit bureaus that generate your credit rating.

Your credit score doesn’t start at zero. Instead, there is simply no report with any of the three major credit bureaus. While people with no credit will still have some borrowing options — credit cards targeting students, for example — it will be simpler if you have an entry level credit score when you need to borrow.

Credit builder loans can also help people who’ve made a few credit mistakes and are looking for ways to increase their current credit score.

A Consumer Financial Protection Bureau analysis of about 1,500 consumers released in 2020 found that “participants without existing debt saw their credit scores increase by 60 points more than participants with existing debt.”

Top lenders that offer credit-builder loans

Top overall pick: Self

Self is an online lender is a credit builder that does loan amounts between $520 to $1663. You can choose from 4 plans with the payment term and dollar amount that fits your budget. You can begin building a credit history for as little as $25 a month. Terms range from 12 to 24 months. You can automate payments and track how your credit score changes over time. When you open a Self account, you can qualify for a Self Visa credit card in as little as three months.

Your CD is placed into an FDIC-insured Certificate of Deposit (CD) account and held in your name at one of their partner banks.
Self allows for early payoff with a prepayment penalty fee of less than $5, depending on the account size. But, keep in mind if you are considering paying your account off early to receive the funds sooner, be aware that payment history is the most critical factor in determining your credit score. By paying off the account early, you may not establish as much payment history with the three major credit bureaus.

Their interest rates range from 14.70% to 15.97%. Other fees include a $125 finance charge and a one-time $9 non-refundable administrative fee. Self credit builder loans are available in all 50 states.

Online lenders


CreditStrong starts at just $15 a month with seven plans to choose from and is available for up to 120 months. There is a $15-$25 non-refundable fee. You can close your account at any time with no cost or penalty.
They have higher amount plans suitable for customers who need to demonstrate their ability to reliably repay more significant credit obligations. These higher amount plans may include customers who want business credit down the line or a large personal loan. Not available in Wisconsin and Vermont.

Requirements to open an account:

  • You must be at least 18 years old and a permanent U.S. resident with a physical U.S. residence (address)
  • A valid Social Security number (SSN) or individual taxpayer identification number (ITIN)
  • A checking account, debit card, or prepaid card in good standing
  • A mobile phone number, Google Voice account
  • An email address


Credit Builder Plus is MoneyLion’s program to help build or rebuild your credit. They give you access to a portion of your loan funds right away and access to 0% APR cash advances of up to $300 per period. Loans up to $1000, sets up automatic payments timed to your pay cycle and establishes 12 months of payment history. Credit Builder Plus members get exclusive monthly Lion’s Share Loyalty Program rewards, with payouts up to $19.99 per month. Membership fees are $19.99 a month (plus your loan payment), and Lion’s Share Loyalty Program will reimburse your $1 monthly administrator fee for RoarMoney and Investment.

To qualify for a membership through the MoneyLion app, you must:

  • Be at least 18 years old
  • Be a U.S. citizen or permanent resident
  • Have a Social Security number
  • Have a bank account, debit card, or prepaid card (so you can make payments)

Bank account requirements:

  • A checking or spending account in good standing (at MoneyLion’s discretion) with a detectable income stream (where you deposit your paychecks/salary/benefits checks). Savings and money market accounts will not qualify.
  • The account has been open for at least 60 days.
  • The account demonstrates an acceptable balance and active transaction history (at MoneyLion’s discretion).

Credit union loans

Metro Credit Union

  • Their Credit Builder Loan package has your funds secured in a savings account for the life of the loan up to 24 months at 4.10%. Maximum loan amounts available up to $3,000.
  • It would be best if you were a member of the credit union. You can open a Metro Membership Savings Account with an initial deposit of $5.00. You can open an account online or visit any branch location.
  • A U.S. address is required to open a membership. You can avail of membership even if you live outside of Massachusetts or New Hampshire. You will need two forms of ID to become a member.

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
  • 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

Heartland Bank

  • The entire loan amount is placed in a Heartland Bank Simply Savings Account and held as collateral. The amount borrowed with these loans ranges between $500 and $1,500.
  • This is a personal loan designed for a single borrower only.
  • To apply, you must have proof of identity, address, and six months of verifiable income.
  • Once approved, a $25 document fee will be required at closing.
  • You must provide a Certificate of Completion from a Money Matters Financial Education Class.

Sunrise Bank

  • Loan terms are 12 months or 18 months.
  • The loan funds are placed in a CD, and monthly repayments are approximately $50.
  • 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.

Your bank or credit union

Ask your bank or credit union if it offers credit builder loans. Local banks know your financial situation, and they are in an excellent position to assess the best strategies for building credit. Using your bank makes it easy to set up payments.
How does a credit builder loan work?

  • It helps you build positive payment history
  • Allows you to save money
  • It’s usually offered by small community banks and credit unions

How a credit builder loan works

If your loan application is approved, the amount you borrow is held in a savings account or CD as you make monthly payments. You generally won’t access the money until the loan amount is fully paid. The credit builder loan allows you to build savings and credit simultaneously. It also offers protection for the lender, so they will usually offer them to borrowers with bad credit scores.
The lender will report your payments to at least one of the three major credit bureaus — Experian, Equifax, Transunion — which will help boost your FICO and VantageScore scores.

Does a credit builder loan require a credit check?

Different lenders have different policies. They will fall into one of three categories.

  • No credit check is required. Some credit-builder loans require no credit check at all.
  • A soft pull, which does not affect your credit.
  • A hard pull, where a lender will view your entire credit report. A hard pull will temporarily reduce your score.

If a lender does check your credit, the required score is usually low.

What are the other requirements for a credit builder loan?

These are the most common requirements:

  • You will have to be 18 or above.
  • A Social Security number is required.
  • You will need to be a U.S. citizen or be a permanent U.S. resident.
  • You’ll need a bank account, debit card, or prepaid card to make payments.
  • Proof of income is required.

Some lenders may have additional requirements.

How fast do credit builder loans build credit?

It will take about six months of credit activity to establish enough history for a FICO credit score, used in 90% of lending decisions.

How to manage a credit builder loan

● Choose the right type with a payment you can afford.
● Do not make late payments, or put it on autopay, so you never miss a payment.
● Monitor your credit score.
● Make plans for how you’ll use the money you get back when your loan is fully paid. Using the money toward an emergency fund would be a wise move.

Tips for using credit builder loans to build good credit

● Keep tabs on progress by monitoring credit reports
● Pay your credit builder loan on time, every time, without exception; use autopay
● Pay off your loan in full by the end of the loan

Risks of credit builder loans

● You may hurt your credit if you don’t make on-time payments
● You could end up paying high fees
● Lack of accessibility — you are paying interest on the money you can’t access

How much do credit builder loans cost?

A credit builder loan can range from $300 to about $1,000. Here are some things to research:

  • The annual percentage rate (APR)
  • Interest payments
  • Other fees and costs: The loan repayment term. The longer your loan term, the more interest you’ll pay. Administration and prepayment penalty fees.
  • Maximum and minimum loan limits
  • What is the monthly loan payment, and is it affordable?

Can you get a credit builder loan with bad credit?

Yes, because the bank is holding your money as a form of collateral.

Why does a credit score matter?

Lenders will use your credit scores to determine your creditworthiness. These scores dictate whether you get the loan, your credit limits, and the rate you will pay. Insurers also use credit scores to set premiums for auto and homeowner coverage. A higher credit score usually will let you skip security deposits for utilities or additional landlord security.

How do I check a credit score?

It’s essential to be on top of your credit history. Monitor your credit report regularly, check for any inaccurate or incomplete information, and immediately dispute or correct any errors. You can pull your credit report at Annualcreditreport.com.

Other options or financial products to help you build credit

Secured loan

A secured loan is a loan backed by collateral, financial assets you own, like a home or a car. These loans not only allow you to use a financial institution’s funds, but they can also help you create a positive credit history.

Become an authorized user

Ask a family member to add you to a credit card account as an authorized user. Make sure it is a person with good credit, and always repay them for what you spend. Focus on a payment plan: The primary cardholder is responsible for paying the bill, but any missed or late payments will appear on both parties’ credit reports.

Secured credit card

A secured credit card requires you to put down a deposit with your card issuer before being granted a line of credit. Credit issuers use this deposit as collateral if you’re unable to pay your credit card bill. In most cases, your deposit amount is equal to your credit limit. So, if you put down a security deposit of $500, your credit line will also be $500.

Installment loans

An installment loan is funding you get in a lump sum and pay back over a set period. Loan amounts for unsecured installment loans or personal loans can vary. One caveat is some installment loans are not much better than payday loans. Be sure to check the interest rates.

Experian Boost

Experian Boost gives you credit for bills like your phone, utilities, and popular streaming services for free. All you need to do is answer a few security questions and connect to your bank. Any bills you add will need to have three months of payments within the last six months and have to be in your name.

The bottom line

There are many benefits to building and maintaining a good credit history. For one, you get access to lower interest rates. It’s also essential to understand how credit works. Once you know how to get a good credit score, you’ll be able to take advantage of all of the positive financial opportunities associated with good credit.


Does a credit-builder loan require a credit check?

Not all require a credit check. Check the loan requirements of each lender.

Do I need a bank account to get a credit builder loan?

Yes, so you will be able to make monthly payments to the lender for the life of the loan.

How many credit-builder loans can you have at once?

Lenders may limit the number of loans or the total amount of money they’ll give you. You can have more than one loan at a time, but consider whether you can manage the extra debt. You’re more likely to be blocked from getting multiple loans by the lender than the law.

Does a credit builder loan have any upfront fees?

Most will have some fee. Check the lender website for specific details.

Why do I need to worry about building credit?

Because many life decisions revolve around your credit, like taking out a mortgage, opening a credit card, renting, and buying a car, it is crucial to building a good credit score.

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