How to Build Your Credit With a Credit Builder Loan

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How Student Loan Hero Gets Paid

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If you have poor credit, you might find yourself in a Catch-22: You want to improve your score but don’t have the income or funds to do so. For example, you might want to use a secured credit card to improve your credit but be unable to afford the security deposit.

That’s where credit builder loans come in handy. Like other financial products, they can help increase your credit score.

Here’s how credit builder loans work and your best options if you need to get one.

How credit builder loans work

Credit builder loans, sometimes called “fresh start loans,” are typically small personal loans for about $500 to $1,000. You make monthly payments with interest over about six months to two years. These payments are reported to the credit bureaus and, if made on time, can improve your credit score.

Although credit builder loans function much like any other loan, there’s one major difference. To limit risk, the lender puts the money you borrow into a savings account, which you can only access once the loan is paid off.

However, you could also try using a traditional secured personal loan or unsecured personal loan to build credit.

A secured loan requires you to put up collateral, such as savings or property. If you fail to repay the loan, the lender keeps the collateral. However, your rates could be lower than with an unsecured loan.

With an unsecured loan, you don’t have to offer collateral. However, you might pay higher rates or not qualify for the loan if you have poor credit. If you do qualify, you’ll get the money you borrowed upfront.

Before applying, be clear about your intentions for getting the loan in the first place. Ask yourself if you need money to pay for something or just want to build your credit score.

Where to find credit builder loans

Credit builder loans can be hard to find. However, you can often find them at community banks, credit unions, or nonprofit organizations.

Banks

National banks might not offer credit builder loans, but you could find secured personal loans. If you’re looking for a financial product specifically tailored to help build your credit, though, get in touch with local banks.

Sunrise Banks in Minnesota, for example, has a credit builder program where you can borrow up to $1,500. That money is placed into a certificate of deposit (CD), which earns interest as you pay back the loan.

Once the loan is repaid, you get the money in full. You’ll also earn a refund of 50% of the total interest you paid on the loan if you made all your payments on time. The bank also says that it’ll report your loan payment history to Experian, Transunion, and Equifax.

Programs vary depending on the bank, but this is an example of how local banks help their communities with credit builder loans.

Credit unions

Like a local bank, credit unions are community-based financial institutions. But they’re owned and operated by their members, so they don’t have any obligation to stockholders. This community focus means these organizations are keen to help locals grow a positive financial portfolio.

For example, 1st Financial Federal Credit Union in Missouri offers credit builder loans for up to $1,000, which you pay back with interest over 12 months. Your payment history is shared with the credit bureaus, and you’ll get 50% of the interest you paid refunded if you made on-time payments.

Do your research to see what credit unions are available in your area and if they offer similar credit builder loans.

Nonprofit organizations

All over the country, there are nonprofit organizations with the goal of helping people rebuild their credit.

Consumer Action is a nonprofit advocacy group that offers resources to help you build credit. It also offers tips for filing your taxes, protecting your identity, identifying scams, and more. Resources such as this one can help you develop positive habits for managing your finances.

Online

Some companies are seeing the value of bringing credit builder loans to the masses by offering them online. Self Lender, for example, works with Lead Bank and Sunrise Banks to offer such loans in all 50 states.

You can take out a small loan with a 12- to 24-month term. The money you borrow is put into a CD, which earns interest. After paying off the loan, you get your money from the CD.

The program is similar to those you might find at your local bank or credit union. However, if you don’t have access to a credit builder program in your community, an online lender is a great resource to turn to.

Know the pros and cons of credit builder loans

While credit builder loans vary by state and financial institution, each is intended to help you build a positive credit history. As these personal loans were created for people with bad credit, you’ll be more likely to qualify. You might also find that the interest rates tend to be lower than those found on a credit card or personal loan.

However, you can’t access the money you borrowed until you’ve paid off the loan. This isn’t helpful if you’re in dire need of cash.

Remember: This is just one way to rebuild your credit. You can also review your credit report to check for errors affecting your score or reduce your expenses and then put the savings toward debt. Debt consolidation companies can also help you better manage your payments.

Each of these strategies can boost your credit score and put you on the path toward financial success.

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LendingTree allows you to compare rates from multiple lenders by filling out one easy form. How Student Loan Hero Gets Paid

How Student Loan Hero Gets Paid

Student Loan Hero is compensated by companies on this site and this compensation may impact how and where offers appears on this site (such as the order). Student Loan Hero does not include all lenders, savings products, or loan options available in the marketplace.

Advertiser Disclosure

Student Loan Hero Advertiser Disclosure

Student Loan Hero is an advertising-supported comparison service. The site features products from our partners as well as institutions which are not advertising partners. While we make an effort to include the best deals available to the general public, we make no warranty that such information represents all available products.

How Student Loan Hero Gets Paid

How Student Loan Hero Gets Paid

Student Loan Hero is compensated by companies on this site and this compensation may impact how and where offers appears on this site (such as the order). Student Loan Hero does not include all lenders, savings products, or loan options available in the marketplace.

Advertiser Disclosure

Student Loan Hero Advertiser Disclosure

Student Loan Hero is an advertising-supported comparison service. The site features products from our partners as well as institutions which are not advertising partners. While we make an effort to include the best deals available to the general public, we make no warranty that such information represents all available products.

RATES (APR)loan amount
5.99% – 19.16%1 $5,000 to $100,000
7.86% – 35.99% $1,000 to $50,000
5.94% – 35.97%* $1,000 to $50,000
99.00% – 199.00%2 $500 to $4,000
5.99% – 24.99%3 $5,000 to $40,000
7.99% – 29.99%4 $7,500 to $40,000
compare rates on Lendingtree now
NMLS #1136: Terms & Conditions Apply
1 Includes AutoPay discount. Important Disclosures for SoFi.

SoFi Disclosures

  1. Fixed rates from 5.99% APR to 18.82% APR (with AutoPay). SoFi rate ranges are current as of March 19, 2020 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 creditworthiness, years of professional experience, income and other factors. See APR examples and terms. 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. To check the rates and terms you qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull.
    See Consumer Licenses.
  3. Minimum Credit Score: Not all applicants who meet SoFi’s minimum credit score requirements are approved for a personal loan. In addition to meeting SoFi’s minimum eligibility criteria, applicants must also meet other credit and underwriting requirements to qualify.
  4. If you lose your job through no fault of your own, you may apply for Unemployment Protection. SoFi will suspend your monthly SoFi loan payments and provide job placement assistance during your forbearance period. Interest will continue to accrue and will be added to your principal balance at the end of each forbearance period, to the extent permitted by applicable law. Benefits are offered in three month increments, and capped at 12 months, in aggregate, over the life of the loan. To be eligible for this assistance you must provide proof that you have applied for and are eligible for unemployment compensation, and you must actively work with our Career Advisory Group to look for new employment. If the loan is co-signed the unemployment protection applies where both the borrower and cosigner lose their job and meet conditions.
  5. 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 Includes AutoPay discount. Important Disclosures for Opploans.

Opploans Disclosures

Direct Deposit required for payroll.

Opploans currently operates in these states: . *Approval may take longer if additional verification documents are requested. Not all loan requests are approved. Approval and loan terms vary based on credit determination and state law. Applications processed and approved before 7:30 p.m. ET Monday-Friday are typically funded the next business day.

  1. To qualify, a borrower must (i) be a U.S. citizen or permanent resident; (ii) reside in a state where OppLoans operates; (iii) have direct deposit; (iv) meet income requirements; (v) be 18 years of age (19 in Alabama); and, (vi) meet verification standards.
  2. NV Residents: The use of high-interest loans services should be used for short-term financial needs only and not as a long-term financial solution. Customers with credit difficulties should seek credit counseling before entering into any loan transaction.

  3. OppLoans performs no credit checks through the three major credit bureaus Experian, Equifax, or TransUnion. Applicants’ credit scores are provided by Clarity Services, Inc., a credit reporting agency.

  4. Based on customer service ratings on Google and Facebook. Testimonials reflect the individual’s opinion and may not be illustrative of all individual experiences with OppLoans. Check loan reviews.

  5.  

    Rates and terms vary by state.

3 Includes AutoPay discount. Important Disclosures for Payoff.

Payoff Disclosures

  1. All loans are subject to credit review and approval. Your actual rate depends upon credit score, loan amount, loan term, credit usage and history. Currently loans are not offered in: MA, MS, NE, NV, OH, and WV.
4 Important Disclosures for FreedomPlus.

FreedomPlus Disclosures

  1. The loan terms presented are not guaranteed and APRs presented are estimates only. To obtain a loan you must submit additional information and documentation and all loans are subject to credit review and our approval process. The range of APRs is 7.99% to 29.99% and your actual APR will depend upon factors including your credit score, usage and history, the requested loan amount, the stated loan purpose, and the term of the requested loan. To qualify for a 7.99% APR loan, a borrower will need excellent credit on a loan for an amount less than $12,000.00, and with a term equal to 24 months. Adding a co-borrower with sufficient income; using at least eighty-five percent (85%) of the loan proceeds to directly pay off qualifying existing debt; or showing proof of sufficient retirement savings, could help you also qualify for the lowest rate available. All loans are made by Cross River Bank and MetaBank®, N.A., Members FDIC.
* Important Disclosures for Upgrade Bank.

Upgrade Bank Disclosures

Personal loans made through Upgrade feature APRs of 5.94%-35.97%. All personal loans have a 2.9% to 8% origination fee, which is deducted from the loan proceeds. Lowest rates require Autopay and paying off a portion of existing debt directly. For example, if you receive a $10,000 loan with a 36-month term and a 17.98% APR (which includes a 14.32% yearly interest rate and a 5% one-time origination fee), you would receive $9,500 in your account and would have a required monthly payment of $343.33. Over the life of the loan, your payments would total $12,359.97. The APR on your loan may be higher or lower and your loan offers may not have multiple term lengths available. Actual rate depends on credit score, credit usage history, loan term, and other factors. Late payments or subsequent charges and fees may increase the cost of your fixed rate loan. There is no fee or penalty for repaying a loan early. Accept your loan offer and your funds will be sent to your bank or designated account within one (1) business day of clearing necessary verifications. Availability of the funds is dependent on how quickly your bank processes the transaction. From the time of approval, funds should be available within four (4) business days. Funds sent directly to pay off your creditors may take up to 2 weeks to clear, depending on the creditor. Personal loans issued by Upgrade’s lending partners. Information on Upgrade’s lending partners can be found at https://www.upgrade.com/lending-partners/.