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Best credit-builder loans

If you want to establish your credit, consider one of these lenders

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It can be difficult to get approved for any type of loan when you have poor credit or no credit — which is where credit-builder loans come in.

These loans don't work like traditional loans that extend credit. Instead, credit-builder loans typically have you make payments to a savings account. The lender then reports these payments to the credit bureaus, which can help you build credit with responsible use.

The best credit-builder loans offer you the chance to improve your credit seamlessly while also establishing positive credit habits. They also tend to have flexible payment options to fit in nearly anyone's budget, and minimal charges and fees (or no fees at all). Additionally, some credit-builder loans work alongside a secured credit card or a debit card you can use for purchases.

Compare top credit-builder loans

Credit-builder loans can make sense for consumers who need help building credit but haven't found the right opportunity yet. The following lenders offer credit-builder loans with the best rates and terms, as well as some extra perks and features.

To make our top choices, our research team evaluated 14 credit-builder loan companies. We selected three based on factors that are important to borrowers, including the number of credit bureaus reported to, loan amount ranges, loan term lengths and fees. We also considered state availability and annual percentage rate (APR).

Our picks may be Authorized Partners who compensate us. This does not affect our recommendations or evaluations but may affect the order in which companies appear.

Digital Federal Credit Union
  • Loan amounts: $500-$3,000
  • Term length: 12-24 months
  • Credit bureaus: Reports to all three credit bureaus

Digital Federal Credit Union (DCU) requires a certain type of affiliation to join, such as having a family connection to an existing member or belonging to one of its partner organizations, employers or communities. If someone does meet membership requirements, they can take advantage of DCU’s traditional-style Credit Builder Loan of up to $3,000.

With the DCU Credit Builder Loan, you can “borrow” between $500-$3,000, which you pay back into your savings account over 12-24 months. The APR is set at 5% as of this writing, but the funds paid into a DCU Savings account earn dividends — which essentially means you earn some money back on your loan payments.

As an example, you could receive a Credit Builder Loan for $1,000 with a monthly payment of $43.87 for a term of 24 months. Ultimately, this would leave you paying $1,052.88. At the end of your term, you would then get access to your $1,000 plus an undisclosed amount of dividends earned.

Pros of DCU’s Credit Builder Loan include:
  • Allows you to save money and build credit at the same time
  • Flexible repayment terms and loan amounts
  • Yields some dividends on your savings (but not a lot)
Cons of DCU’s Credit Builder Loan include:
  • Must meet requirements for credit union membership
  • Does not come with a secured card or debit card for purchases
  • Cannot access your "savings" until your loan is paid off
Digital Federal Credit Union has not been reviewed by ConsumerAffairs readers.

Credit Karma Money
  • Loan amounts: $500
  • Term length: N/A
  • Credit bureaus: Reports to all three credit bureaus

Credit Karma has long been a source for free credit scores and other financial management tools, but the company upped the ante when it launched its Credit Builder in January 2022.

With this plan, you aren’t given money to spend straight away. Instead, the “loan” is locked in as an aid to help you save while you build credit. Credit Karma’s Credit Builder comes with no fees and doesn't charge any interest.

Getting started requires you to first open a Credit Karma Money Spend account. From there, you set a Credit Builder plan, deciding how much you want to save and how often. Credit Karma’s partner company, SeedFi, then deposits your savings into a locked account, which you pay back according to the terms of your Credit Builder plan.

While you work toward this goal, Credit Karma reports your payments to the three major credit bureaus.

Once your savings reach the $500 threshold, that money is moved to your Money Spend account. You can then continue saving on your own or through automatic transfers, or you’re free to spend the money you’ve saved.

Benefits of Credit Karma’s Credit Builder include:
  • Connected Money Spend account comes with a Visa debit card
  • No interest charges or loan fees
  • No credit check to apply
Some of the features to consider with Credit Karma’s Credit Builder include:
  • Money Spend account required
  • Minimum contribution amounts of $10 or $20, depending on contribution type
  • Debit card may tempt you to spend your new savings
Many reviews of Credit Karma on ConsumerAffairs are positive, with a number of customers saying they are happy with the services they received. Suzy of Pensacola, Florida, said, "They have helped me monitor and build my credit for six yrs! Great app!"

However, some past Credit Karma customers have said they struggled to get issues with their accounts fixed promptly and had difficulty uploading documents to Credit Karma’s secure portal.

  • Loan amounts: $520-$3,076
  • Term length: 24 months
  • Credit bureaus: Reports to all three credit bureaus

Self is a financial company that offers products to help you build credit. For starters, Self offers its Credit Builder Account, in which you make payments to a bank-held certificate of deposit (CD) that will be refunded to you, minus fees and interest.

You also have the option to apply for a Self Visa Credit Card (a secured card) to go along with your Credit Builder Account. You just have to meet basic requirements, including making three on-time payments, having $100 or more saved and keeping the account in good standing.

The credit-builder loan itself is offered in four different versions, with total payments ranging from $600 to $3,600. Essentially, you will make a monthly payment between $25 and $150 for 24 months, during which your payments are reported to the three credit bureaus.

A $9 administrative fee applies to each account, as well as APRs ranging from 15.72% to 15.97%.

Highlights of a Self Credit Builder Account include:
  • Optional secured credit card
  • Four loan options to choose from
  • Save money as you build credit for the future
Here are some features to think about before getting a Self Credit Builder Account:
  • Administrative charges apply
  • Relatively high APRs
  • Cannot access funds until loan term ends
Self has not been reviewed by ConsumerAffairs readers.

Pros and cons of credit-builder loans

The main advantages of credit-builder loans depend on the type of product chosen. For example, some credit-builder loans (like those from Digital Federal Credit Union and Self) make it possible for you to build up your savings and build credit at the same time.

Meanwhile, credit-builder loans that come with secured credit cards or debit cards help you get in the habit of making on-time payments, and make it easy to make purchases using your saved-up funds.

But the biggest advantage of these accounts is the ability to build credit. Payment history is the largest factor of your credit score, so when on-time payments to a credit-builder loan are reported to the three credit reporting agencies — Experian, Equifax and TransUnion — this reflects positively on your credit usage and provides a much-needed boost in this category.

There are a few downsides to credit-builder loans, which depend on the type of product and your individual situation. For starters, some credit-builder loans require your income and employment to be verified.

Not only that, but credit-builder loans have the potential to backfire if you don't use them wisely. If you don’t make your payments on time, your loan could end up negatively affecting your score.

Alternatives to credit-builder loans

If you like the idea of a credit-builder loan but want to consider all your options, the following financial products could work in place of a credit-builder loan.

  • Credit-building apps: A feature called Experian Boost lets you build credit using alternative data like streaming services you pay for and your utility bill payments. This is free, so you can benefit whether you get a credit-builder loan or not. The catch is this only helps you with your Experian credit report (not with Equifax or TransUnion).
  • Secured credit cards: Secured credit cards let you put down a cash deposit as collateral, at which point you receive a credit limit of the same amount. As you use the secured card for purchases and make payments, this information is reported to the credit bureaus on your behalf.
  • Secured personal loans: There are also secured personal loans to consider, which require collateral like cash in a savings account or the title of a car you own. The collateral will be seized if you fail to make payments, but these accounts also build credit since they typically report to the three credit bureaus.
  • Becoming an authorized user: If you have a family member or trusted friend with good credit who is willing and able, you can also become an authorized user on their credit card account. The best part is, being an authorized user can help you build credit whether the primary cardholder gives you access to the authorized user card or not.

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    When is a credit-builder loan a good idea?

    The ideal candidate for credit-builder loans is someone who doesn’t have any credit history, or who has a low score and can’t qualify for traditional credit products. While a secured credit card can help accomplish the same goal, a credit-builder loan doesn't require a large cash deposit (often $200 or more with secured cards) to get started.

    Can I get a credit-builder loan with bad credit?

    Credit-builder loans are available to consumers with poor credit. Many of the best don't even require a credit check when you apply.

    Do banks have credit-builder loans?

    Major banks typically don't offer credit-builder loans at this time, but many do offer secured credit cards.

    Are credit-builder loans the same as personal loans?

    Credit-builder loans are different from personal loans because you make payments to a savings account in your name, versus borrowing money in advance that you have to pay back.

    Bottom line

    If you have poor credit or no credit and you can't find any financial products that you will be approved for, a credit-builder loan may be the answer. These loans are available to nearly anyone, and a credit check isn't required in most cases. Credit-builder loans help you build credit as you make on-time payments, which can make it easier to qualify for better financial products and loans down the line.

    Just remember that credit-builder loans are only tools, and they can make your credit even worse if you forget to make payments on time.

    ConsumerAffairs writers primarily rely on government data, industry experts and original research from other reputable publications to inform their work. Specific sources for this article include:
    1. Capital One, "What is a credit-builder loan?" Accessed Jan. 30, 2023.
    2. Consumer Financial Protection Bureau, "I want to help my daughter start her credit history. What should I do?" Accessed Jan. 31, 2023.
    3. FICO, "Do You Know the 5 Factors of FICO Scores? Quiz Time!" Accessed Jan. 31, 2023.
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