How to Restore Your Credit With a Credit Builder Loan

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Student Loan Hero Advertiser Disclosure

Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.

credit builder loan

After your Social Security number, the most important number in your life is your credit score. Your score affects everything from the house or apartment you’re approved for to what kind of deal you can get on a new car.

If your credit is less than stellar — or if you have no credit history at all — you might have trouble getting any form of credit. If you do qualify, you might face high interest rates that cause your balances to grow over time. Boosting your credit score is an important part of improving your finances.

If you’re building credit for the first time or are trying to reset a bad credit score, one option that can help is a credit builder loan.

How is my credit score determined?

If you have credit cards, loans, or ongoing bills, the three major reporting bureaus — Experian, Equifax, and TransUnion — use that data to compile your credit history. Each company uses their own calculations to determine your credit score.

Credit card companies and lenders review your credit score to determine your reliability and creditworthiness. However, other entities look at your credit score, too. Potential landlords, utility companies, and even cell phone carriers might look it up when you apply. A poor score might mean you cannot get approved.

According to the Fair Isaac Corporation, the company behind the commonly used FICO score, the following factors determine your score:

  • Payment history: Your payment history shows whether you have paid all of your bills on time. If you’ve missed a payment or fallen behind, that can affect your credit history. Your payment history accounts for 35 percent of your credit score.
  • Amounts owed: Accounting for 30 percent of your score, the amounts owed category is how much of your available credit you use. The less you use, the better. For instance, if you have a $10,000 credit limit and only have a $1,000 balance, that’s much better than if you had a balance of $9,000.
  • Length of credit history: Lenders want to see several years of credit history, which is why the timeline of your credit report accounts for 15 percent of your score. If you’re a new borrower or are just opening your first credit card, your score will likely be lower than someone with a longer history.
  • Credit mix: Lenders like to see that you can handle multiple types of credit, rather than just relying on one credit card. Having a mix of different forms, such as credit cards and installment loans, contributes to 10 percent of your score.
  • New credit: If you open up several different accounts in a short time frame, that can make lenders nervous and reduce your score. New credit accounts affect 10 percent of your credit score.

If you’re just starting out or are rebuilding your credit, improving your score can be tricky. You can’t improve your credit report without getting credit, and you can’t get credit without a strong credit report.

However, that doesn’t mean you’re out of luck. Credit builder loans can help you start building your credit history in a safe way.

What is a credit builder loan?

A credit builder loan is a small, short-term installment loan for those with poor credit or no credit history.

With a traditional personal loan, you submit an application to a lender. The lender looks at your income and credit score to determine whether to approve you. If they do approve your application, you’ll receive the loan amount in your bank account within a few weeks.

But when you apply for credit builder loans, no credit check is required in many cases. Because they work differently than regular personal loans, credit builder loans present less risk to lenders.

With a credit builder loan, you don’t receive the loan amount upfront. Instead, the lender deposits the amount into a savings account or certificate of deposit (CD) for you. Your payments each month go toward the loan, but you can’t access the savings account or CD until your payments total the amount you borrowed.

For example, Digital Federal Credit Union offers loans as small as $500 with repayment terms as long as 24 months. After making all the required payments, you will have $500 in a savings account that’s entirely yours.

The lender reports the loan and your monthly payments to the three credit reporting agencies. If you made all of your payments on time, a credit builder loan can improve your credit score.

It’s important to know that credit builder loan lenders don’t only report positive information to the credit reporting agencies. If you make late payments, the company will submit that information, as well — harming your credit score.

How can I find a credit builder loan near me?

Some of the best credit builder loans are often offered by credit unions or nonprofit organizations.

If you have a savings or checking account with a credit union, you can ask a representative about credit builder loan options. For those who don’t have a credit union already, you can use a credit union locator tool to find one near you.

Local nonprofits whose missions are focused on financial literacy and stability might offer credit builder loans, as well. The Credit Builders Alliance, a nonprofit that encourages financial institutions to report alternative loans to the major credit reporting bureaus, maintains a searchable database of organizations that offer credit-building loans and other financial programs.

Can I get credit-building loans online?

If you can’t get a credit builder loan from a local credit union or nonprofit, there are online options you can use, such as Self Lender.

Self Lender, available to residents in all 50 states, offers credit builder loans ranging from $525 to $2,200. It partners with multiple banks to issue loans and report the information to all three credit reporting agencies.

If you’d like to apply for a loan with Self Lender, you must:

  • Have a bank account, debit card, or prepaid card
  • Have an email address and phone number
  • Know your Social Security number
  • Be a permanent U.S. resident with a physical U.S. address
  • Be at least 18 years old

The company says you can apply for a loan in as little as five minutes. Once you create an account, the site will prompt you to enter information like your address, income, and Social Security number.

If Self Lender approves you for a loan, you will owe a $12 to $15 administrative fee. The company will deposit your loan into a CD account that earns an annual percentage yield of 0.10%. After you complete your repayment term, Self Lender will release the CD with its accrued interest to you.

If you can’t make the payments, SelfLender allows you to cancel the loan early for a fee.

Improving your credit history

If your credit score is in need of help, a credit builder loan can be an excellent tool to give it a boost. However, it’s not the only option you have to improve your credit. For more ideas, check out the best secured credit cards to rebuild credit.

Interested in a personal loan?

Here are the top personal loan lenders of 2018!
LenderRates (APR)Loan Amount 
1 Includes AutoPay discount. Important Disclosures for SoFi.

SoFi Disclosures

  1. Personal LoansFixed rates from 5.950% APR to 14.490% APR (with AutoPay). Variable rates from 5.825% APR to 14.365% APR (with AutoPay). SoFi rate ranges are current as of May 3, 2018, and are subject to change without notice. Not all rates and amounts available in all states. See Personal Loan eligibility details. Not all applicants qualify for the lowest rate. If approved for a loan, to qualify for the lowest rate, you must have a responsible financial history and meet other conditions. Your actual rate will be within the range of rates listed above and will depend on a variety of factors, including evaluation of your credit worthiness, years of professional experience, income and other factors. See APR examples and terms. Interest rates on variable rate loans are capped at 14.95%. Lowest variable rate of 5.825% APR assu[mes current 1-month LIBOR rate of 1.90% plus 4.175% margin minus 0.25% AutoPay discount. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account.
  2. Terms and Conditions Apply: SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi’s underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Financing Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (www.nmlsconsumeraccess.org)

2 Important Disclosures for Citizens Bank.

Citizens Bank Disclosures

  1. Personal Loan Rate Disclosure: Fixed interest rates range from 4.99% – 16.24% (4.99% – 16.24% APR) based on applicable terms. Lowest rates shown are for eligible applicants, require a 3-year repayment term, and include our Loyalty and Automatic Payment Discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
  2. Loyalty Discount: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower has a qualifying account in existence with us at the time the borrower has submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, student loans or other personal loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI and VT. This discount will be reflected in the interest rate and Annual Percentage Rate (APR) disclosed in the Truth-In-Lending Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan, and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
  3. Automatic Payment Discount: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their Citizens Bank Personal Loan during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account two or more times within any 12-month period, the borrower will no longer be eligible for this discount.

* Important Disclosures for Upgrade Bank


Upgrade Bank Disclosures


  • Your loan terms are not guaranteed and are subject to our verification and review process. You may be asked to provide additional documents to enable us to verify your income and your identity. This rate includes an Autopay APR reduction of 0.5%. By enrolling in Autopay your payments will be automatically deducted from you bank account. Selecting Autopay is optional. Annual Percentage Rate is inclusive of a loan origination fee, which is deducted from the loan proceeds. Late payments or subsequent charges and fees may increase the cost of your fixed rate loan. All loans made by WebBank, member FDIC. Please refer to Upgrade’s Terms of Use and Borrower Agreement for all terms, conditions and requirements.
  • Accept your loan offer and your funds will be sent to your bank via ACH within one (1) business day of clearing necessary verifications. Availability of the funds is dependent on how quickly your bank processes this transaction. From the time of approval, funds should be available within four (4) business days.

7.73% - 29.99%$1,000 - $50,000
Check rate nowon SLH's secure site
5.83% - 14.74%1$5,000 - $100,000
Check rate nowon SLH's secure site
5.96% - 35.97%*$1,000 - $50,000Visit Upgrade
8.00% - 25.00%$5,000 - $35,000
Check rate nowon SLH's secure site
4.99% - 29.99%$10,000 - $35,000Visit FreedomPlus
4.99% - 16.24%2$5,000 - $50,000Visit Citizens
15.49% - 34.49%$2,000 - $25,000Visit LendingPoint
5.99% - 35.89%$1,000 - $40,000Visit LendingClub
5.49% - 18.24%$5,000 - $75,000Visit Earnest
9.95% - 35.99%$2,000 - $35,000Visit Avant
Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.