When you were in school, rating your progress and achievements depended on grade point averages (GPAs) and test scores. As an adult, those numbers turn to credit scores and interest rates. But keeping your credit score up can be even harder than earning A’s and B’s in school.
Studies show that the average credit score in the United States in 2021 was 714. The average has continued to increase since the early 2000s, but not everyone is average. After all, with so many things going on in the world lately, the average has changed quite a bit.
If your credit score isn’t where you want it to be, that’s okay! There are ways you can build your credit up to earn better interest rates and qualify for bigger loans. Credit building loans can help you do just that.
Taking another loan out might sound like a bad idea with poor credit, but these loans are different. Many let you walk away with not only a better score but also a large portion of your monthly payments as well. Win-win, right?
Are you ready to learn more about the best credit builder loans? Let’s get started!
10 Best Credit Builder Loans
Building your credit is a big deal, especially if you want to pay less for future loans. Check out how you can use loans from these companies to improve your credit now and in the future.
Obtaining a credit builder loan with Self is easy. You can choose your monthly payment based on which term length you choose. For example, if you choose 12 months, you’ll pay $48 or $150 per month depending on the total loan amount. Go with a longer period of two years and you’ll pay either $25 or $35 per month instead.
Opening an account with Self does come with a $9 administration fee. You can use the interactive calculator to figure out how much you’ll get back after paying off your loan. Self does charge a 15.9% APR, which is about three times the amount other online banks charge.
In addition to flexible loan terms, Self also offers a secured credit card. This card comes with no fees, but you will have to save $100 and have three months of payment history before you’re eligible to apply.
A credit builder loan with CreditStrong can help you improve both your personal and business credit scores. When it comes to personal credit, the Instal credit builder loan from CreditStrong can help you rack up those points for better interest rates.
Choose from either Build or Build and Save plans to increase your credit. The Build plan features smaller monthly payments of up to $25 for up to 120 months. However, you’ll want to choose the Build and Save option if you want an interest-bearing savings account.
With the Build credit builder loan, you’ll get a portion of the payments you make once the loan is paid off. The same goes for the Build and Save loan, but you’ll receive more of your payments minus any fees.
CreditStrong offers loans from $1,000 to $2,500, depending on which terms you choose. You can also upgrade to the Magnum loan, which offers $10,000 in exchange for a $55 monthly payment.
The Magnum loan can make it easy to rack up points over the 10-year loan term. At the same time, you won’t build savings as you would with a CreditStrong Build and Save loan.
CreditStrong provides credit-building products with no credit check. They can help build your credit score by diversifying your credit mix and improving your payment history with timely payments. CreditStrong’s products will be most effective if you have a thin credit file with few or no installment loans.
If you want to avoid personal loans to build credit, check out MoneyLion. This lender offers loans up to $1,000 with a 12-month term.
MoneyLion offers tons of perks, including credit monitoring tools and shopping rewards. You’ll also have access to over 55,000 ATMs with MoneyLion as well.
Apps like MoneyLion often give members the chance to take out cash advances as well. MoneyLion advances you up to $300 per pay period with 0% APR.
Credit builder loans are part of the MoneyLion Credit Build Plus service that costs $19.99 per month on top of your monthly loan payment. Learn more about MoneyLion in our in-depth review.
MoneyLion is a money app that offers a membership program that includes online banking services, cash back rewards, credit-builder loans and more. You can create a MoneyLion account for free, which will give you access to a zero-fee checking account and an investment account.
Note: SeedFi is now part of Intuit's Credit Karma business. They will continue its mission and focus their efforts on other products that will help people in great ways.
Open a free SeedFi Savings Account to qualify for a credit builder loan through SeedFi Credit Builder Prime. With no fees and monthly payments as low as $10, SeedFi makes it easy to improve your credit score.
Every $500 you save with SeedFi qualifies you for a line of credit you can use to build your credit. Save $1,000 or more to keep building credit for multiple years at a time.
If you ever need cash immediately, you can use the Borrow & Grow installment program to request funds. However, you’ll pay fees for these instant funds, in addition to interest rates ranging from 40-90% APR.
Apps like Cleo allow you to budget and save from a single place without having to open multiple accounts. Plus, Cleo gives you the chance to qualify for the Credit Builder Card that doesn’t come with a hard credit check.
A single dollar is all you need to get your Credit Builder Card going. That said, the balance you deposit is the amount you have to spend on the card, similar to a prepaid card.
Cleo’s Credit Builder Card is one of many perks of the Cleo Builder service that costs $14.99 per month. However, the first three months cost only $9.99 to get you started.
With the Credit Builder Card, you’ll learn cashback rewards and have the chance to request cash advances up to $120. Cleo is available nationwide and reports to all three credit bureaus as well.
In addition to budgeting tools and other money management features, Cleo offers short-term loans as well. However, if you’re wanting to build credit, the Credit Builder Card is the way to go.
When you open an account with Kikoff, it’s more than just a service that helps you build credit. Instead, Kikoff matches you to resources that let you learn about financial topics and build your credit at the same time.
Kikoff offers a revolving line of credit that costs $24 for a 12-month membership. This service reports to Equifax and Experian only, so it won’t appear on your TransUnion score.
The $24 membership fee is nonrefundable, but it’s the price you’ll pay to play the credit-building game. Your credit line begins at $500 and you can use it to pay for Kikoff-specific products, such as ebooks.
Many of these ebooks will help you better manage your money and are priced at a few dollars each. You use your line of credit to pay back the balance you accrue, so monthly payments can be small or large depending on how many ebooks you purchase.
Additional credit-building features from Kikoff include the Credit Account and Credit Builder Loan. The Credit Account incorporates a revolving line of credit that can help improve your score by reducing your credit utilization.
You’ll need the Credit Builder Loan to demonstrate on-time payments. For $10 per month, you can commit to a one-year savings plan to improve your score by up to 58 points.
Like many of the best credit-building apps out there, Kikoff doesn’t do a hard credit pull but does feature bank-level security. With low monthly payments and plenty of learning resources, it’s hard to say no to a Kikoff credit builder loan.
Kikoff makes it easy to gain access to build credit. With $750 of credit at your disposal and a low monthly payment of $5, you will be able to establish a sound payment history that is reported directly to the major credit bureaus – helping you build up your credit score.
Credit unions such as Digital Federal Credit Union do limit their members. However, with a DFCU Credit Builder Loan, you can borrow up to $3,000 for up to two years to build out your credit for the future.
DFCU charges a 5.24% APR and offers monthly payments of roughly $44 for every $1,000 borrowed. These terms are competitive with most of the credit unions and banks on our list.
You’ll find physical branches of DFCU in New England, but it shares branches and ATMs with other banks across the nation as well. DFCU allows you to open a free checking or savings account and access your funds online or in person.
8. Fig Loans
A short-term loan can go a long way in helping you establish or better your credit score. With Fig Loans, you’ll get your money instantly upon approval after paying a one-time setup fee.
In contrast, the Fig Credit Builder Account comes with a one-year repayment period on balances of around $1,000. You can choose a higher balance for a longer period, but you’ll pay a higher monthly payment.
Once you complete payments on your new Fig credit builder loan, you’ll receive your payments in full. A higher balance and longer terms will get you a higher score increase, but it all depends on what you can afford.
Fig Loans reports to all three credit bureaus and never charges late fees. You can also close out your loan early, albeit with a few caveats involved.
Republic Bank offers its Credit Builder program to reward you with loans of $500 to $1,500 with repayment terms of 12 months, 18 months, or 24 months. There is a one-time $10 administration fee in addition to minimal fees for this type of credit-building loan.
On top of offering flexible terms, Republic Bank also charges 5.6% to 8.3% APR. That’s comparable with many of the other lenders on our list.
If you’re looking to obtain a loan at a lower rate, Republic Bank awards you with a lower APR for larger loan amounts. As long as you can make the monthly payments, this is one of the best ways to build your credit with Republic Bank.
Republic Bank’s Credit Builder program is only available to residents of Ohio, Tennessee, Kentucky, Indiana, and Florida. However, you can also choose from other types of business and personal banking services at Republic Bank, too.
If you live in the Boston area and need a credit builder loan, you’re in luck! Metro Credit Union offers two types of loans to choose from: the Credit Builder Loan and the Prosperity Builder Loan.
The Credit Builder Loan allows you to borrow between $500 and $2,000 for up to two years. As you make payments, they’re deposited into a savings account until the terms are met.
With a Prosperity Builder Loan, you’ll deposit your funds right away into a savings account. This gives you the chance to borrow up to twice your balance and repay it over three years.
To qualify for either one of these loans, you’ll need to visit a Metro Credit Union branch and have $5 to open the account. This credit union also serves residents of Massachusetts and New Hampshire as well.
Free checking and savings accounts from Metro Credit Union rival what you’d find at a bank. For example, the Prosperity Builder Loan can be a great alternative to lines of credit that come with high interest rates and stricter terms.
When it comes to credit unions versus banks, Metro Credit Union’s credit builder loans give you a fighting chance to up your score without paying huge fees.
How Do Credit Builder Loans Work
Loans often come with confusing terms and conditions that make it difficult to know what you’re getting into. Here are the basics of a credit builder loan to help clear up any confusion:
- Credit builder loans are best for individuals who don’t have a credit score or have one that’s 620 or less. Those with a score of 670 or more should look into credit cards with no annual fees instead.
- Use a credit builder loan to increase your credit score without going into debt.
- Online banks and credit unions offer credit builder loans, though you may have to ask for them specifically.
- Payments on credit builder loans typically go to all three credit bureaus, including TransUnion, Equifax, and Experian.
- Many credit builder loans deposit your monthly payments into an FDIC-insured account. Some earn interest just like a bank certificate of deposit.
- There’s potential for up to a 60-point increase in your credit score over the life of the credit builder loan, depending on specifics.
Credit builder loans can also help establish good spending habits. For example, if you’re not sure how to pay off credit card debt, perhaps to the tune of $5,000, a credit builder app can help you get into a monthly payment routine you can apply to your credit card balance. It’s all about learning something new about your credit and using it to get further ahead.
How to Make the Most of Credit Builder Loans
Credit builder loans help increase your credit score by providing a history of on-time payments. If you want to move up to the next tier of credit score ranges, a credit builder loan can help.
However, you should consider the following before you choose a lender:
- Payment terms: Most credit builder loans come with terms ranging from six months to two years. Longer terms often mean lower monthly payments, but it depends on the overall loan amount.
- Monthly payments: Building your credit can come at an affordable monthly rate. Be sure you know how much you can afford to pay monthly, though a higher loan balance typically comes with a higher monthly rate.
- Fees: Credit-building loans often come with administrative and set-up fees that aren’t always refundable. This is how most lenders make money from doing business with you.
- Cancellation policies: Lenders may give you the chance to pay off your remaining balance and close the account early without a penalty. However, you’ll also lose that credit history if you do.
- Cash distribution amount: Many of the loans above let you “pay” into a fund that you can access once the terms are met. However, not all lenders refund your proceeds, and most will not refund the various fees associated with this type of loan.
- Availability: Some states do not allow residents to participate in credit-building loans based on specific regulations. Check to see if your state is on the list before making any major moves.
It pays to look carefully into the terms and conditions of each credit-builder lender. Knowing what you’re getting yourself into is the first step in learning how to improve your credit score and better manage both your credit and future loans.
Related: 10 Best Credit Score Apps
Which loans help build credit?
Lenders offer credit builder loans specifically to help people build credit. These loans set up a payment plan that’s affordable to demonstrate positive credit history.
In some cases, you can even come out of these loans with savings you’ve accrued as you’ve built up your credit.
How can loans help build credit?
A Credit-building loan is an agreement between you and a lender that comes with a particular debt amount that’s repaid every month. Demonstrating on-time payments with this lender helps improve your credit history and can boost your credit score.
Who do credit builder loans help most?
Credit builder loans can help both those new to credit and those with poor credit. When life gives you a lower credit score, you can use a credit builder loan to build it back up over time.
Give Credit Where Credit is Due
Maintaining a healthy credit score can be difficult, especially when you’re just starting out. With credit builder loans, you can easily establish and maintain credit to improve it by a few points as you make on-time payments.
While credit builder loans aren't the only way to build credit, they don’t require a credit check and can provide several other benefits as well. We hope you’ve found this article on credit builder loans useful and inspiring.
After all, your credit score can change, just like you! Improving both just takes a little bit of direction and encouragement.
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