What is a Credit Builder Loan?

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Key takeaways

Credit builder loans help people with no or low credit establish a positive payment history and boost their score.
Making on-time payments is essential. Missing payments can cause the loan to hurt your score instead of helping it.
Credit builder loans are worth it if you have no credit, can afford the payments, and don’t have debt.

To get credit, you need credit. The classic Catch-22 makes it difficult for anyone just starting or trying to rebuild their credit scores. If you find yourself in this position, a credit builder loan may be the ticket.

Credit builder loans help people with little or no credit establish a positive payment history. A strong payment history will boost your score. Why is your credit score important? A good credit score can help you secure personal loans with favorable terms and credit cards with cash back rewards and perks.

The best part is that these small loans to build credit do not require a good score for approval. Let’s go over how they work and how to get one.

How does a credit builder loan work?

One credit-building tip is to take out a credit builder loan and make every payment on time.

Credit builder loans are starter loans to build credit. They are the reverse of a traditional loan. Instead of receiving the money upfront, the lender will place it in a secured account.

You’ll make monthly payments over a set term of six to 24 months. Once you’ve completed the repayment term, you’ll receive the full loan amount.

The lender reports your payments to at least one of the credit bureaus (Equifax, Experian, and TransUnion). Ideally, they will report to all three. When you pay on time or early, your score will increase. If you miss a payment or pay late, the loan may do more harm than good.

The Consumer Financial Protection Bureau found that borrowers were 24% more likely to have a credit score after getting a credit builder loan. Borrowers without debt had scores that increased by 60 points more than those with debt.

Requirements for a credit builder loan

Lenders designed credit-building loans for bad credit to be accessible. Most do not require a minimum credit score. They will ask for proof of identity, a steady income, and a valid checking account to ensure you can afford the loan.

How to get a credit builder loan

Getting started with a credit builder loan is easy. Follow these five steps to apply for and benefit from loans for building credit.

Explore credit building loans online

You can find credit builder loans at smaller financial institutions. Credit unions, community banks, online lenders, and fintech companies all may offer credit repair loans. Review their features, requirements, interest rates, and fees.

Make sure that they report to all three credit bureaus. Reporting to all three will go the furthest to help you build credit.

A lot of lenders will charge an annual percentage rate (APR) on rebuild credit loans. Some will return a portion of the interest to you at the end of the loan term.

Select a loan amount

Evaluate your finances and choose a loan amount that fits your budget. Most credit builder loans range from $300 to $1,000, though some go higher. A common entry point is a $500 credit builder loan with no credit check and manageable payments.

Prioritize loans whose payments you can afford. Missing a payment means the loan will do more harm than good. Many lenders offer a 6 month credit builder loan with low monthly payments to make credit building more accessible.

Unsecured credit builder loans do not exist. The loan amount you select that the lender puts away in a secured account is considered collateral.

Tired of having a poor score?

Knock down these seven roadblocks to good credit!

Collect documents

To apply, you’ll need to gather some basic information and documents. Even for credit builder loans, no credit check, lenders typically require:

Government-issued photo ID (e.g., driver’s license or passport)
Proof of income (pay stubs, tax returns, or bank statements)
Employer information
Social Security Number or Taxpayer Identification Number
Active bank account details
Current housing, loan, credit card, and child support payments

The documentation helps the lender verify your identity and assess your ability to handle the monthly payments.

Submit application

Once you’ve gathered your documents, fill out the application. You can typically apply for a credit builder loan online. Most loan applications take less than 10 minutes to complete.

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Some lenders will accept all applicants, while others have set criteria you need to meet. If a lender denies you, find out why and try again with another lender.

Initiate your payments

Once approved, you’ll begin to repay the loan. Timely payments are key. If you don’t pay on time, the credit builder loan will not work as designed. Late or missed payments can leave you worse off than where you started.

Many lenders offer autopay options to help you stay on track. Some even provide early payout options or partial withdrawals. Unfortunately, there are no credit builder loans that give you money upfront.

Best credit builder loans

The best credit builder loans are easy to qualify for, have low fees, and report to all three major credit bureaus. Look for loans with flexible terms, affordable monthly payments, and clear repayment structures.

Loans from credit unions tend to have the lowest fees. Some may even offer early access to funds or no credit check requirements.

Certain fintech companies provide credit builder loans and cash advances. If receiving instant cash is important, look for a company that offers both services.

Pros and cons of credit builder loans

Pros:

Build or repair your credit history
No credit is needed to qualify
Fixed monthly payments are easier to manage
Establish responsible financial habits
Usually, no hard inquiry
Easy to qualify for
Lower interest rate than credit builder credit cards
Encourages saving money

Cons:

No immediate access to cash
You will have to pay interest and fees
Missed or late payments will hurt your score
Only small loan amounts under $1,000
Another form of debt you have to pay back
Wait months for results

Other ways to build credit fast

If you’re wondering how to build your credit fast, a credit builder loan is a good start, but it’s not your only option. You can take out loans to help build credit or apply for a credit card. While these are standard credit-building tools, you shouldn’t overlook that paying rent can build credit as well.

Consider these alternatives to give your score an additional boost.

Personal loans to build credit

Personal loans for bad credit are one way to improve your score. These loans are easier to qualify for and can help build credit by reporting your monthly payments to credit bureaus. Make every payment on time to see real credit benefits.

Upgrade personal loans are a popular solution since the company considers more than just your credit history. While Wells Fargo does offer personal loans, they may not be ideal for applicants with bad credit. If your score is lower, consider online lenders specializing in subprime loans.

If you need immediate cash, 1 hour payday loans with no credit check can be appealing. Payday loans are best avoided. Lenders do not report to credit bureaus, so the loan won’t help your score. They are expensive and often lead to a cycle of debt.

Apply for a secured credit card

A secured credit card is a popular tool since it functions like a regular credit card, but is easy to qualify for. You put down an upfront deposit, typically $200 or more, that sets your credit limit. Each month, the issuer will report your activity to the credit bureaus, which can help increase your score.

The best way to use a credit card to build credit is to keep your balance below 10% of your limit, pay on time and in full each month. As you prove yourself responsible, the issuer may upgrade you to a traditional credit card and refund your deposit.

Become an authorized user

If a friend or relative has good credit, see if they can make you an authorized user on their credit card account. Being an authorized user means the credit account’s history appears on your credit report, positively affecting your credit score. You don’t even have to use the card to benefit.

Anyone can get a credit card!

Click here for tips and tricks to boost your application!

Get a cosigner on a loan

If you cannot qualify for a loan by yourself, try applying for a personal loan with a cosigner. A cosigner is a person with strong credit who accepts shared responsibility for the loan.

Why would a borrower get a cosigner for a loan? A cosigner can help you qualify for a loan with better terms than you could get on your own. Lenders view cosigned loans as less risky since the other applicant is responsible for payments if you default.

Once again, make on-time payments, and your score will improve. Missing payments will cause both your and your cosigner’s scores to suffer.

Frequently asked questions

1. Is it hard to get a credit builder loan?

Credit builder loans are one the easiest types of loans to get since lenders designed them for people with poor credit. As long as you have proof of income and a valid ID, you can qualify without much hassle.

2. Where can I get a credit builder loan?

You can get a credit builder loan from credit unions, community banks, online lenders, and financial technology companies.

3. Do personal loans build credit?

Personal loans will help build credit if you make payments on time. Timely payments will boost your payment history, a key factor in calculating your credit score. Just be sure the lender reports to all three major credit bureaus.

4. How much does a credit builder loan help your credit?

How much a credit builder loan improves your score depends on your credit profile and whether you pay on time. Many users see a credit score increase of 30–100 points after completing their loan.

5. Do you get your money back from a credit builder loan?

You will receive your money after you’ve made all the payments. Some lenders will release the funds to you with interest earned.

Bottom line

Credit builder loans can be a good tool for building credit. They work especially well if you are credit invisible (no credit score or report) or have a thin credit file. The loan will give you a boost so that you can access other financial products.

Taking out a credit builder loan does not automatically boost your score; you have to work at it. Paying on time every month is key. If you frequently pay bills late or need money now, a credit builder loan is not for you.

There are other ways to establish a good score if taking out a loan is not appealing. Look into becoming an authorized user. Apply for a secured credit card with flexible deposit requirements. Perhaps taking out a personal loan that gives you upfront access to funds is the right choice.

Whatever you choose, use your new tool responsibly. Your credit score will only increase if you demonstrate that you can be trusted.

1. Paycheck Advance is For eligible customers only. Your actual available Paycheck Advance amount will be displayed to you in the mobile app and may change from time to time. Conditions and eligibility may vary and are subject to change at any time, at the sole discretion of Finco Advance LLC, which offers this optional feature. Finco Advance LLC is a financial technology company, not a bank. Expedited disbursement of your Paycheck Advance is an optional feature that is subject to an Instant Access Fee and may not be available to all users. Expedited disbursements may take up to an hour. For more information, please refer to Paycheck Advance Terms and Conditions.

2. Paycheck Advance is an earned wage access service and is not a loan or credit product.

3. Current is a financial technology company, not an FDIC-insured bank. FDIC insurance up to $250,000 only covers the failure of an FDIC-insured bank. Certain conditions must be satisfied for pass-through deposit insurance coverage to apply. Banking services provided by Choice Financial Group, Member FDIC, and/or Cross River Bank, Member FDIC. The Current Visa® Debit Card, which may be issued by Choice Financial Group and/or Cross River Bank, and the Current Visa® secured charge card, which is issued by Cross River Bank, are all issued pursuant to licenses from Visa U.S.A. Inc. and may be used everywhere Visa debit or credit cards are accepted. A Current debit account is required to apply for the Current Visa® secured charge card. Independent approval required.

4. Faster access to funds is based on comparison of traditional banking policies and deposit of paper checks from employers and government agencies versus deposits made electronically. Direct deposit and earlier availability of funds is subject to timing of payer’s submission of deposits.

5. Debit card: Fees may apply, including out of network cash withdrawal fees, third-party fees, cash load fees, inactivity fees, account closure fees, international transaction fees, replacement card fees, express mail fees and escheatment fees. Build Card: Some fees may apply, including out of network ATM fees of $2.50 per transaction, late payment fees of 3% of any total due balance outstanding and past due for two or more billing cycles, foreign transaction fees of 3% of the full transaction amount (minimum $0.50), card replacement fees per card of $5 for regular delivery and $30 for expedited delivery, cash deposit fees of $3.50 per deposit, and third party processing fees.

6. Current is a financial technology company, not a bank. Banking services provided by Choice Financial Group, Member FDIC, and Cross River Bank, Member FDIC. The Current Visa® Debit Card is issued by Choice Financial Group pursuant to a license from Visa U.S.A. Inc. and may be used everywhere Visa debit cards are accepted. The Current Visa® secured charge card is issued by Cross River Bank pursuant to a license from Visa U.S.A. Inc. and may be used everywhere Visa credit cards are accepted. Please see the back of your Card for its issuing bank. Current Individual Account required to apply for the Current Visa® secured charge card. Independent approval required.

7. Individual results may vary. Using your credit card responsibly may allow you to improve your credit score. Credit building depends on various factors, including your payment history, credit utilization, length of credit history, and other financial activities.

8. Faster access to funds is based on comparison of traditional banking policies and deposit of paper checks from employers and government agencies versus deposits made electronically. Direct deposit and earlier availability of funds is subject to timing of payer’s submission of deposits.

9. Current is a financial technology company, not a bank. Banking services provided by Choice Financial Group. Funds held in Savings Pods are FDIC-insured on a pass-through basis up to $250,000 at our partner bank Choice Financial Group, member FDIC.

10. Paycheck Advance is For eligible customers only. Your actual available Paycheck Advance amount will be displayed to you in the mobile app and may change from time to time. Conditions and eligibility may vary and are subject to change at any time, at the sole discretion of Finco Advance LLC, which offers this optional feature. Finco Advance LLC is a financial technology company, not a bank.

11. Expedited disbursement of your Paycheck Advance is an optional feature that is subject to an Instant Access Fee and may not be available to all users. Expedited disbursements may take up to an hour. For more information, please refer to Paycheck Advance Terms and Conditions.

12. Actual overdraft amount may vary and is subject to change at any time, at Current’s sole discretion. In order to qualify and enroll in the Fee-Free Overdraft feature, you must receive $500 or more in Eligible Direct Deposits into your Current Account over the preceding 35-day period and fulfill other requirements subject to Current’s discretion. Negative balances must be repaid within 60 days of the first Eligible Transaction that caused the negative balance. For more information, please refer to Fee-free Overdraft Terms and Conditions. Individual Current Accounts only.

13. For eligible customers only. You may earn Points in connection with your Build Card purchases at retailers whose merchant code is classified as: Dining (e.g., restaurants) and Groceries (e.g., supermarkets) and by completing other actions that Current designates as subject to the Current Points Program. The amount of Points granted for different actions as well as the purchase requirements necessary to earn Points will vary, and is subject to Current’s sole discretion. After qualifying, please allow 3-5 business days for points to post to your Current account. Points will expire 365 days after they settle. For more information (including specific eligibility criteria), please refer to the Current Points Terms and Condition.

14. Some fees may apply, including out of network ATM fees of $2.50 per transaction, late payment fees of 3% of any total due balance outstanding and past due for two or more billing cycles, foreign transaction fees of 3% of the full transaction amount (minimum $0.50), card replacement fees per card of $5 for regular delivery and $30 for expedited delivery, cash deposit fees of $3.50 per deposit, and third party processing fees.

15. Boost Bonuses are credited to your Savings Pods within 48 hours of enabling the Boost feature and on a daily basis thereafter, provided that the Savings Pod has accrued a Boost Bonus of at least $0.01. No minimum balance required. The Boost rate on Savings Pods is variable and may change at any time. The disclosed rate is effective as of August 1, 2023. Must have $0.01 in Savings Pods to earn a Boost rate of either 0.25% or 4.00% annually on the portion of balances up to $2000 per Savings Pod, up to $6000 total. The remaining balance earns 0.00%. To earn a Boost rate of 4.00%, the sum of your Eligible Payroll Deposits over a rolling 35-day period must be $500 or more, with at least one Eligible Payroll Deposit equalling a minimum of $200. For more information, please refer to Current Boost Terms and Conditions.

16. Current is a financial technology company, not a bank. Banking services provided by Choice Financial Group. Your money is FDIC-insured on a pass-through basis up to $250,000 at each of our partner banks, Choice Financial Group and Cross River Bank, members FDIC.

17. Average value based on Fine Hotels + Resorts bookings in 2023 for stays of two nights. Benefits include daily breakfast for two, room upgrade upon arrival when available, $100 amenity, guaranteed 4PM late checkout, and noon check-in when available. Certain room categories not eligible for upgrade. $100 amenity varies by property. Actual value will vary based on property, room rate, upgrade availability, and use of benefits.

18. Up to $500 per Covered Trip that is delayed for more than 6 hours; and 2 claims per Eligible Card per 12 consecutive month period. Eligibility and Benefit level varies by Card. Terms, Conditions, and Limitations Apply. Please visit americanexpress.com/benefitsguide for more details. Underwritten by New Hampshire Insurance Company, an AIG Company.

19. The maximum benefit amount for Trip Cancellation and Interruption Insurance is $10,000 per Covered Trip and $20,000 per Eligible Card per 12 consecutive month period. Eligibility and Benefit level varies by Card. Terms, Conditions, and Limitations Apply. Please visit americanexpress.com/benefitsguide for more details. Underwritten by New Hampshire Insurance Company, an AIG Company.

20. Baggage Insurance Plan coverage can be in effect for Covered Persons for eligible lost, damaged, or stolen Baggage during their travel on a Common Carrier Vehicle (e.g. plane, train, ship, or bus) when the Entire Fare for a ticket for the trip (one- way or round-trip) is charged to an Eligible Card. Coverage can be provided for up to $2,000 for checked Baggage and up to a combined maximum of $3,000 for checked and carry-on baggage, in excess of coverage provided by the Common Carrier. The coverage is also subject to a $3,000 aggregate limit per Covered Trip. For New York State residents, there is a $2,000 per bag/suitcase limit for each Covered Person with a $10,000 aggregate maximum for all Covered Persons per Covered Trip. Eligibility and Benefit level varies by Card. Terms, Conditions, and Limitations Apply. Please visit americanexpress.com/benefitsguide for more details. Underwritten by AMEX Assurance Company.

21. Car Rental Loss and Damage Insurance can provide coverage up to $75,000 for theft of or damage to most rental vehicles when you use your eligible Card to reserve and pay for the entire eligible vehicle rental and decline the collision damage waiver or similar option offered by the Commercial Car Rental Company. This product provides secondary coverage and does not include liability coverage. Not all vehicle types or rentals are covered. Geographic restrictions apply. Eligibility and Benefit level varies by Card. Terms, Conditions, and Limitations Apply. Please visit americanexpress.com/benefitsguide for more details. Underwritten by AMEX Assurance Company. Car Rental Loss or Damage Coverage is offered through American Express Travel Related Services Company, Inc.

22. Coverage for a Stolen or damaged Eligible Cellular Wireless Telephone is subject to the terms, conditions, exclusions, and limits of liability of this benefit. The maximum liability is $800, per claim, per Eligible Card Account. Each claim is subject to a $50 deductible. Coverage is limited to two (2) claims per Eligible Card Account per 12 month period. Eligibility and Benefit level varies by Card. Terms, Conditions, and Limitations Apply. Please visit americanexpress.com/benefitsguide for more details. Underwritten by New Hampshire Insurance Company, an AIG Company.

23. When an American Express® Card Member charges a Covered Purchase to an Eligible Card, Extended Warranty§ can provide up to one extra year added to the Original Manufacturer’s Warranty. Applies to warranties of five (5) years or less. Coverage is up to the actual amount charged to your Card for the item up to a maximum of $10,000; not to exceed $50,000 per Card Member account per calendar year. Eligibility and Benefit level varies by Card. Terms, Conditions, and Limitations Apply. Please visit americanexpress.com/benefitsguide for more details. Underwritten by AMEX Assurance Company.

24. Purchase Protection is an embedded benefit of your Card Membership and requires no enrollment. It can help protect Covered Purchases made on your Eligible Card when they’re accidentally damaged, stolen, or lost, for up to 90 days from the Covered Purchase date. The coverage is limited to up to $10,000 per occurrence, up to $50,000 per Card Member account per calendar year. Coverage Limits Apply. Eligibility and Benefit level varies by Card. Terms, Conditions, and Limitations Apply. Please visit americanexpress.com/benefitsguide for more details. Underwritten by AMEX Assurance Company.

25. Chime is a financial technology company, not a bank. Banking services provided by The Bancorp Bank, N.A. or Stride Bank, N.A., Members FDIC.

26. The secured Chime Credit Builder Visa® Card is issued by Stride Bank, N.A., Member FDIC, pursuant to a license from Visa U.S.A. Inc. and may be used everywhere Visa credit cards are accepted.

27. Banking services and debit card provided by The Bancorp Bank N.A. or Stride Bank, N.A., Members FDIC, pursuant to a license from Visa U.S.A. Inc. and may be used everywhere Visa debit cards are accepted.

28. The Annual Percentage Yield (“APY”) for the Chime Savings Account is variable and may change at any time. The disclosed APY is effective as of September 20, 2023. No minimum balance required. Must have $0.01 in savings to earn interest.

29. There’s no fee for the Chime Savings Account. Cash withdrawal and Third-party fees may apply to Chime Checking Accounts. You must have a Chime Checking Account to open a Chime Savings Account.

30. To apply for Credit Builder, you must have received a single qualifying direct deposit of $200 or more to your Chime Checking Account. The qualifying direct deposit must be from your employer, payroll provider, gig economy payer, or benefits payer by Automated Clearing House (ACH) deposit OR Original Credit Transaction (OCT). Bank ACH transfers, Pay Anyone transfers, verification or trial deposits from financial institutions, peer to peer transfers from services such as PayPal, Cash App, or Venmo, mobile check deposits, cash loads or deposits, one-time direct deposits, such as tax refunds and other similar transactions, and any deposit to which Chime deems to not be a qualifying direct deposit are not qualifying direct deposits.

31. Money added to Credit Builder will be held in a secured account as collateral for your Credit Builder Visa card, which means you can spend up to this amount on your card. This is money you can use to pay off your charges at the end of every month.

32. Based on a representative study conducted by Experian®, members who made their first purchase with Credit Builder between June 2020 and October 2020 observed an average FICO® Score 8 increase of 30 points after approximately 8 months. On-time payment history can have a positive impact on your credit score. Late payment may negatively impact your credit score.

33. On-time payment history may have a positive impact on your credit score. Late payment may negatively impact your credit score. Chime will report your activities to Transunion®, Experian®, and Equifax®. Impact on your credit may vary, as Credit scores are independently determined by credit bureaus based on a number of factors including the financial decisions you make with other financial services organizations.

34. Early access to direct deposit funds depends on the timing of the submission of the payment file from the payer. We generally make these funds available on the day the payment file is received, which may be up to 2 days earlier than the scheduled payment date.

35. SpotMe® on Debit is an optional, no fee overdraft service attached to your Chime Checking Account. To qualify for the SpotMe on Debit service, you must receive $200 or more in qualifying direct deposits to your Chime Checking Account each month and have activated your Visa debit card. Qualifying members will be allowed to overdraw their Chime Checking Account for up to $20 on debit card purchases and cash withdrawals initially but may later be eligible for a higher limit of up to $200 or more based on Chime Account history, direct deposit frequency and amount, spending activity and other risk-based factors. The SpotMe on Debit limit will be displayed within the Chime mobile app and is subject to change at any time, at Chime’s sole discretion. Although Chime does not charge any overdraft fees for SpotMe on Debit, there may be out-of-network or third-party fees associated with ATM transactions. SpotMe on Debit will not cover any non-debit card transactions, including ACH transfers, Pay Anyone transfers, or Chime Checkbook transactions. SpotMe on Debit Terms and Conditions.

36. Tipping or not tipping has no impact on your eligibility for SpotMe®.

37. Out-of-network ATM withdrawal fees may apply except at MoneyPass ATMs in a 7-Eleven, or any Allpoint or Visa Plus Alliance ATM.

38. Save When I Get Paid automatically transfers 10% of your direct deposits of $500 or more from your Checking Account into your savings account.

39. Round Ups automatically round up debit card purchases to the nearest dollar and transfer the round up from your Chime Checking Account to your savings account.

40. Mobile Check Deposit eligibility is determined by Chime in its sole discretion and may be granted based on various factors including, but not limited to, a member’s direct deposit enrollment status.

41. Funds are automatically debited from your Checking Account and typically deposited into the recipient’s Checking Account within seconds. Pay Anyone transactions will be monitored and may be held, delayed or blocked if the transfer could result in fraud or another form of financial harm. Sometimes instant transfers can be delayed.

42. Pay Anyone transactions will be monitored and may be held, delayed or blocked if the transfer could result in fraud or another form of financial harm. Sometimes instant transfers can be delayed. Non-Chime members must use a valid debit card to claim funds.

43. Not affiliated with Empower Annuity Insurance Company of America (www.empower.com). Not everyone will qualify. Offers range from $10-$300 for first-time customers; $10-$400 for all others. Offers are based on our eligibility requirements and can go up with on-time payments. In Feb 2025, the average offer was $95 for first-time customers; $187 for all others. Instant delivery is optional—see fees in Empower’s Terms. Empower offers a 14-day trial for first-time customers followed by an auto-recurring $8/month subscription fee. Cancel anytime.

* EarnIn is not available for Connecticut residents

Rachel Alulis

Rachel Alulis has been the lead editor for Moneyfor's credit cards team since 2015 and for the financial rewards team since 2023. Before joining Moneyfor, Rachel worked at USA Today and the Des Moines Register. She then established a successful freelance writing and editing business specializing in personal finance. Rachel holds a bachelor's degree in journalism and an MBA.

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What is a Credit Builder Loan?

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