How to Improve Your Credit With a 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-building loans

Taking out loans to build your credit might seem contradictory at first, but if you do it right, borrowing small amounts of money can improve your credit score.

Your credit score indicates how good you are at managing your finances and paying back debt. By using credit-building loans to establish a positive repayment history, you can boost your credit and prove you’re trustworthy with money.

Credit reaches deep into your life

Your credit history impacts many significant areas of adult life. Want to rent an apartment? You often need credit for that. Need to finance a new car? Your credit will be checked again.

And that’s not all, according to Ash Exantus, the director of financial education at BankMobile. “[People] may not realize, but a lot of the car insurance places are looking at your credit to determine your monthly premium,” he said.

Your credit score also might impact your ability to get a job, Exantus said. Having poor credit might be a red flag to some employers, especially when they’re hiring for a job where the employee will have easy access to cash.

How to improve your credit with credit-building loans

When you’re trying to build credit, loans can help you establish a positive payment history and add to your credit mix. You have a few options from which to choose when considering credit-building loans.

A few banks, credit unions, and private companies, such as Self Lender, offer credit-builder loans designed to boost your credit. When you borrow money, it isn’t disbursed directly to you. Instead, it’s held in a certificate of deposit (CD). You make regular monthly payments on the loan, and once it’s fully repaid, you get access to the CD and any earned interest.

Alternatively, a regular personal loan might be a useful option. Online lender SoFi, for example, offers $5,000 to $100,000 in personal loans, with interest rates of 5.95% to 14.74% APR. The money from personal loans is deposited directly into your account, but you require a good credit score and healthy income to qualify for the best interest rates.

No matter the type of loan you choose, Exantus recommends following these three steps if you’re trying to build your credit using a loan.

1. Confirm the lender’s reporting policy

Your credit is affected only if the lender reports your activity to the three main credit bureaus — Equifax, Experian, and TransUnion. To build credit more efficiently, ask your lender about its credit-reporting policy.

“Make sure that this credit-builder loan reports to all three credit bureaus,” said Exantus. Some lenders report only to one, which wouldn’t help you build your credit score with all three.

2. Borrow only the amount you can afford

“What you don’t want to do is take out a loan for the sake of building credit, and it backfires and you can’t afford it,” Exantus said. “If you’re paying it late, it becomes a blemish on your report.” That could lower your credit score even more.

Exantus recommends budgeting your finances before you take out the loan to make sure you can pay it back. An easy way to get started is by using our online personal loan calculator, which can help you estimate your monthly payments, depending on the interest rate and the term length.

3. Be proactive if you get into trouble

On-time payments are important on credit-building loans. Despite your best intentions, however, mistakes can happen. You might lose your job, get injured, or have a major unexpected expense. If you’re struggling to afford your payments, address the issue immediately.

“A lot of times people get into hardships and think, ‘I don’t know what to do. I’m not going to do anything,'” Exantus said. “They allow the payments to be late. It defeats the purpose of why you got the loan.”

The first thing you should do is contact the lender, he said. It might be willing to temporarily lower or pause payments until you get back on your feet.

“You won’t know until you ask,” said Exantus. “The first step is to reach out.”

How soon will you see results?

There’s no definite answer on how quickly your credit can improve with credit-building loans because everyone’s situation is unique. Self Lender says its customers who made regular payments on a $1,100 credit-building loan saw a credit score increase of about 45 points within six months.

The Credit Builders Alliance, a nonprofit that focuses on helping Americans build credit, says six to 12 months of on-time payments can move your credit score from nonexistent to prime.

Using loans to build credit

Remember that when it comes to building credit with a loan, you’re not borrowing the money to spend it. It’s simply a tool to help you establish your creditworthiness. If you view credit-building loans as a way to help you move toward financial stability, you can begin to put them to work for you.

It takes time to build credit, but it’s possible with patience and the right resources.

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 Loans: Fixed rates from 5.950% APR to 14.740% APR (with AutoPay). Variable rates from 5.825% APR to 14.365% APR (with AutoPay). SoFi rate ranges are current as of May 18, 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 assumes 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.