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Having a good mix of credit types is one way to improve your credit score. While you may have several credit cards, installment loans are expensive and often inaccessible for those with bad credit. To address this, some lenders offer credit builder loans, which require borrowers to pay off their loans before they get the money. These loans pose little risk to lenders, so borrowers with bad or no credit can qualify.
Whether you want to add an installment loan to your credit report, or you're looking to build credit from scratch, these loans are a great option.
Best Credit Builder Loans of November 2023
Fizz Credit Builder Debit Card - Editorial Name Only : Best for college studentsDigital Credit Union Credit Builder Loan - Product Name Only : Best interest ratesSelf Credit Builder Account - Product Name Only : Best for availabilityFreeKick Credit Builder - Product Name Only : Best for teensCredit Strong Instal Accounts - Product Name Only : Best for loan amountMoneyLion Credit Builder Plus Loan - Product Name Only : Best for additional perks
Best Credit Builder Loans
Methodology: How We Choose the Best Credit Builder Accounts
The most important factors determining which credit builder loans were the "best" were availability, flexibility, and affordability (the -bility trinity, if you will). Loan providers with more state availability did better than regional providers, even if those regional loans had lower APRs. Lenders also had to report your payments to all three credit bureaus, not just one or two.
Flexibility looks at the types of plans the lender offers, including limits, monthly payments, and payment periods. It also considers the borrower's ability to pay off their loans early or cancel their account before their loan is fully paid off. All these loans let their borrowers pay their loans early without penalty. Additionally, all lenders, except for MoneyLion, will not penalize you for canceling your account before your total amount is settled.
The third factor is affordability, which comes down to how much money you spend to build credit. These costs can come in the form of interest paid, origination fees, or additional costs, such as membership fees and early cancellation fees.
Some of these services also have additional perks, such as MoneyLion's credit monitoring. While we folded these into our considerations, they are less important than the core product. Additionally, these services can be found elsewhere at a better price point. Some of the best credit monitoring services are even free.
Credit Builder Loan Frequently Asked Questions (FAQ)
Do credit builder loans require credit checks?
None of the loans included in this guide will trigger a hard inquiry on your credit report. However, some companies will request checking bank account information and may base their rates on the information they see on those accounts.
How long does a credit builder loan last?
Most credit builder loans have payment periods between 12 and 48 months, though you can find some that last longer or cut your credit builder loan short by paying it off early. Longer payment terms are often for people applying for a business loan, not people attempting to build personal credit.
How quickly will a credit builder loan fix my credit?
If you had no credit before your credit builder loan, you will likely see an immediate boost to your credit report if you sign up for one. However, these loans don't "fix" your credit in the sense that it cannot remove negative information from your credit report. It can only add positive information on top of whatever already exists on your credit report.
Are there alternatives to a credit builder loan?
Becoming an authorized user on a friend or family member's credit card is one way to build credit. As an authorized user, you get a credit card in your name. The primary cardholder is responsible for settling your charges when you use the card. You can apply for a secured credit card or other credit cards for people with bad credit instead if this isn't an option.
How much will a credit builder loan improve credit?
The impact of a credit builder loan will vary depending on where your credit score is before you enroll in the loan. Self, one of the larger credit builder loan companies, claims that the average Self customer sees a 49-point raise in their credit score.
Best for College Students
Fizz Credit Builder
Better Business Bureau rating: N/A
Cost:
The Fizz credit builder account is a debit card that reports expenses to the credit bureaus. There's a lot to like about Fizz, such as SafeFreeze, which prevents you from additional spending if you didn't pay off the previous day's balance. Fizz also does not charge interest or fees on your balance. In fact, you can earn rewards by shopping at certain businesses, usually found on college campuses.
As a newer business, Fizz doesn't have a page with the Better Business Bureau. However, it has an average of 4.6 stars across 29 reviews on Trustpilot. 100% of reviewers gave the service four or five stars.
Read our Fizz credit builder review here.
Best Interest Rates
Digital Credit Union
Better Business Bureau rating: A+
Cost:
Digital Federal Credit Union (DCU) offers a good amount of flexibility with its credit builder loans, with loan amounts ranging from $500 to $3,000 over 12 to 24 months. The APR for these loans is steady at 5%, though DCU notes that it can change over time. Your money will also earn dividends in the savings account DCU puts your money in.
The biggest downside to DCU is its exclusivity. You have to be a member of Digital Credit Union to qualify for this loan, and membership is quite limited. DCU is available to a handful of organizations and communities around New England. It also partners with over 800 workplaces to give employees DCU memberships. You can find the full list of DCU membership qualifications here.
That said, you can access a DCU membership by joining one of the affiliated organizations listed on DCU's website since they aren't region-specific. Most of these organizations don't have any location requirements, just a membership fee. You hold a DCU membership for life, so even when your membership at one of the listed organizations expires, you'll still be a DCU member. Your family members will also be eligible for memberships.
Read our DCU credit builder loan review here.
Best for Availability
Self
Better Business Bureau rating: B
Cost:
One of Self's most significant benefits is its
This card may not come with the lowest APR compared to other cards — it bounces around
It's also worth noting that Self has very poor ratings from former customers, an average of 3.47 on its Better Business Bureau page and 1.5 on Trustpilot. Negative reviews commonly cite payout issues, fraudulent accounts, and a general lack of responsiveness from customer service. It's worth noting that some of these reviews misunderstood the purpose of credit builder loans. The Better Business Bureau put an alert on Self's page and reached out to Self, which claimed that it's working to resolve these issues.
| Monthly Payment | Payment Term | Total Savings | APR |
| $25 | 24 months | $520 | 15.92% |
| $35 | 24 months | $724 | 15.97% |
| $48 | 24 months | $992 | 15.72% |
| $150 | 24 months | $3076 | 15.88% |
Read our Self credit builder loan review here.
Best for Teens
FreeKick
Better Business Bureau rating: A+
Cost:
FreeKick is a new product from Austin Capital Bank, the same company that owns CreditStrong. FreeKick allows parents to help their children build credit when they're as young as 14 years old.
When you sign up for FreeKick, you can choose one of three amounts to deposit in an FDIC-insured bank account: $1,000, $1,750, or $2,500. Depositing $1,000 or $1,750 will result in $99 and $49 annual fees, respectively. Depositing the full $2,500 will give you access to FreeKick for free. This deposit is used to pay off a $600 credit builder loan over the course of 12 months. At the end of the 12 months, customers have the option of renewing the account.
While consumers older than 25 aren't eligible for this product, it's a great way for parents to build credit for their kids. It also takes less effort, as the bank account makes the payments for you, so there aren't any monthly payments to keep track of.
Read our FreeKick credit builder account review here.
Best for Loan Amount
CreditStrong
Better Business Bureau rating: B
Cost:
CreditStrong is almost as widespread as Self, with availability in 48 states (not available in Vermont or Wisconsin). CreditStrong offers three credit-building products: Revolv, Instal, and CS Max. Revolv is CreditStrong's subscription-based revolving line of credit and CS Max services customers looking for business credit or large personal loans.
| Program | Monthly Payment | Payment Term | Total Savings | APR |
| Instal 28 | $28 | 48 months | $1,010 | 15.61% |
| Instal 38 | $38 | 36 months | $1,100 | 15.73% |
| Instal 48 | $48 | 24 months | $1,000 | 15.51% |
Read our CreditStrong credit builder loan review here.
Best for Additional Perks
MoneyLion
Better Business Bureau rating: D
Cost:
The biggest drawback to MoneyLion's loan is that you have to pay a monthly $19.99 membership fee to access the credit builder loan. While these costs add up throughout your loan, your membership gets you services in addition to the credit builder loan. It comes with an investment account, deposit account, and credit monitoring services with TransUnion.
Read our MoneyLion credit builder loan review here.
Credit Builder Loans That Didn't Make the Cut
We considered quite a few loans for this list. The following products offer pretty good rates, but they're a little too niche to be called the "best credit builder loans."
Republic Bank: We considered this provider because of its multiple payment plans and decent rates. The reason it didn't make the cut is accessibility. Republic Bank's loan is only available in five states: Florida, Indiana, Kentucky, Ohio, and Tennessee.
Metro Credit Union: Metro Credit Union offers even lower rates than DCU at 4.1%. Its credit builder loan can go as high as $3,000 with payment plans as long as 24 months. Unfortunately, Metro Credit Union is even more exclusive than DCU because it doesn't have that affiliated organization workaround. MCU will also pull a hard inquiry on your credit if you apply, so it's inaccessible to people building credit from scratch.
One takeaway from these honorable mentions is that many local banks provide pretty decent rates compared to the lenders offering nationwide credit builder loans. If you don't see a credit builder loan that checks off your boxes, check with your local credit unions or banks to see if they offer what you need.
What Is a Credit Builder Loan?
When you take out a credit builder loan, the creditor sets aside the money you "borrow" in a savings account. As you repay your loan, the creditor reports your payments to the three main credit bureaus. This builds a positive payment history, a key component of your credit score calculations. Once you reach a certain number of payments or pay the loan off, the creditor returns a portion of the money to you.
Since the creditor keeps the money until it's paid off, they're not at a massive risk of losing money. This means it can approve people with low credit scores or no credit. They also generally charge lower interest rates than traditional loans.
Because of the way these loans work, they are often marketed as savings accounts since you put money away in increments that you'll receive later. Many of these loans charge interest, so you'll get back less than you put in. If you're looking for a savings account, there are better places to look.
Who Offers Credit Builder Loans?
You can find credit builder loans from various financial institutions. However, larger banks like Bank of America or American Express usually don't offer these loans, though they often offer secured credit cards, another credit-building product. Here are some places you may find a credit builder loan:
- Credit unions
- Local banks
- Online lenders
How a Credit Builder Loan Helps Improve a Credit Score
The main reason that credit builder loans are such an effective tool to build credit is that they're available to sub-prime borrowers and people who are credit invisible. It's not an incredible revelation that building credit can be a counterintuitive process since you often need credit to build credit. However, with no credit requirements, they get your foot into the credit-building door.
Once approved for this loan, you can start building your payment history, which makes up roughly 35% of your FICO score and 40% of your VantageScore. If this is the first credit account reported on your credit report, you'll likely see a sharp increase in your credit score. If you're trying to rebuild credit after damaging it in some way, you'll see more muted gains. That's because building credit from scratch is often easier than rebuilding credit.
Can a Credit Builder Loan Hurt Credit?
In most cases, if you make your payments as agreed and close out your credit builder loan when your payment term ends, the worst-case scenario is your credit score stays the same. However, there are a few situations where your credit score may decrease.
While providers aren't technically at risk if you miss a payment, many still report late payments to the credit bureaus. Delinquencies on your credit report can severely damage your credit for up to seven years, at which point they fall off your report. If you're not sure you can keep up with the monthly payments, it might be safer to find alternate ways to build credit, like a rent reporting service. You can find our guide on the best rent reporting services here.
If you already have excellent credit, you may actually hurt your credit score by taking out a credit builder loan. One factor that credit scoring models like FICO and VantageScore take into consideration is the average age of your credit accounts.
Let's say you've had one credit card for three years and another for five years. Your average age of accounts is four years. You then take out a credit builder loan with a two-year payment term, which drags down the average age of your accounts to three years. In this scenario, the additional payment history will likely outweigh the damage you do to your average age of accounts, so your credit score will increase overall. However, it may do more harm than good on a credit report with a more extensive payment history. That's why you should only be looking at these products if you need them.
Credit builder loans are an excellent tool for building credit. However, it's important to note that these should be a means to an end. Your loan provider might offer you additional perks, so you stick around, but once you've built your credit to a certain level, there are better, cheaper ways to continue building credit.