How to Improve Your Credit With a Loan

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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 5.99% to 20.01% 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.

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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. 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 to help you understand what you are buying. Be sure to consult with 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.

Advertiser Disclosure

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. 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 to help you understand what you are buying. Be sure to consult with 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.

RATES (APR)loan amount
5.99% – 20.01%1 $5,000 to $100,000
6.14% – 35.99% $1,000 to $50,000
6.98% – 35.89%* $1,000 to $50,000
99.00% – 199.00%2 $500 to $4,000
5.99% – 24.99%3 $5,000 to $35,000
5.99% – 29.99%4 $7,500 to $40,000
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NMLS #1136: Terms & Conditions Apply
1 Includes AutoPay discount. Important Disclosures for SoFi.

SoFi Disclosures

  1. Fixed rates from 5.99% APR to 20.01% APR (with AutoPay). Variable rates from 6.49% APR to 14.70% APR (with AutoPay). SoFi rate ranges are current as of November 15, 2019 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 6.49% APR assumes current 1-month LIBOR rate of 1.81% plus 4.93% 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. 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. All loans available through FreedomPlus.com are made by Cross River Bank, a New Jersey State Chartered Commercial Bank, Member FDIC, Equal Housing Lender. All loan and rate terms are subject to eligibility restrictions, application review, credit score, loan amount, loan term, lender approval, and credit usage and history. Eligibility for a loan is not guaranteed. Loans are not available to residents of all states – please call a FreedomPlus representative for further details. The following limitations, in addition to others, shall apply: FreedomPlus does not arrange loans in: (i) Arizona under $10,500; (ii) Massachusetts under $6,500, (iii) Ohio under $5,500, and (iv) Georgia under $3,500. Repayment periods range from 24 to 60 months. The range of APRs on loans made available through FreedomPlus is 5.99% to a maximum of 29.99%. APR. The APR calculation includes all applicable fees, including the loan origination fee. For Example, a four year $20,000 loan with an interest rate of 15.49% and corresponding APR of 18.34% would have an estimated monthly payment of $561.60 and a total cost payable of $7,948.13. To qualify for a 5.99% 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.
* Important Disclosures for Upgrade Bank.

Upgrade Bank Disclosures

* Personal loans made through Upgrade feature APRs of 6.98%-35.89%. All personal loans have a 1.5% to 6% 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. Personal loans issued by WebBank, Member FDIC.

** 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.

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