Getting a loan from a bank or any financial institution requires a collateral or high credit score. But what happens if you have neither? Does it mean you can’t access these loans at all? The short answer is no. You can build your credit score from scratch through credit builder loans.
Many financial institutions throughout the United States offer credit builder loans. They have different interest rates and their pros and cons.
This article focuses on the review of some of the best credit builder loans to consider. But before that, let’s get an insight into what credit builder accounts are and how they work.
Table of Contents
- What is a Credit Builder Loan?
- How Does a Credit Builder Loan Work?
- Best Loans to Build Credit
- 1. Self Credit Builder Loan
- 2. Credit Strong
- 3. MoneyLion
- 4. SeedFi
- 5. Digital Federal Credit Union
- 6. Metro Credit Union
- 7. Fig Loans
- 8. Chime
- 9. Heartland Bank
- 10. Republic Bank
- 11. USALLIANCE Financial Credit Union
- 12. SEFCU
- 13. DC Credit Union
What is a Credit Builder Loan?
Credit builder loans are like any other loans. But the difference is in their purpose. The loan is paid in installments to the lender, who only receives the loan proceeds at the end of the loan term.
Typically, most credit builder accounts hold the money in a locked savings account until the borrower pays off the debt at an agreed monthly rate. Some financial institutions that offer credit builder loans may require collateral. That can be a fraction of the loan proceeds, locked in savings accounts or a mortgage.
Loans for rebuilding credit scores are usually charged at high-interest rates. The repayment period also typically varies from 6 months to 24 months. As you repay your credit builder loan, the lender reports your monthly payments to the Credit Bureaus, such as Experian, TransUnion, or Equifax.
Creating a positive monthly payment history helps borrowers boost their credit scores. The best lender usually reports to all three Credit Bureaus to help you improve your credit score faster.
Your credit bureau repayment history contributes to up to 35% of your Fieldbus Intrinsic Safety Concept (FISCO) score.
Credit builder loans have two advantages: boost credit score and build your savings. The loan in the locked savings account is available at the end of the loan term.
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How Does a Credit Builder Loan Work?
Loans to rebuild credit are not very much different from other loans you borrow from financial institutions. The only difference is its main purpose. As the name suggests, they are for building credit scores.
No collateral or credit history is considered when you apply for a loan. So, don’t be afraid to approach any financial institution that offers a credit builder loan.
Credit builder loans work in the following ways:
- The borrower with no or poor credit history with Credit Bureaus applies for a credit builder loan.
- The lender transfers the loaned amount to a locked savings account or certificate of deposit.
- The borrower starts to make monthly payments.
- The lender reports the monthly payments to the Credit Bureaus to build the borrower’s credit history.
- The borrower completes the loan repayment, and the lender releases the money locked in the savings accounts. The interest and profits earned go to the lender.
Loans to build credit scores are given in small amounts, usually not exceeding $3,000. But the loan amount and terms vary from one lender to the next.
Best Loans to Build Credit
Many financial institutions offer loans for building a credit score. Given the number of players, it can be challenging to choose the best credit builder loan provider.
So, what are the factors you should first check before you make your decision?
The best credit builder loans service provider should have the following properties:
- Reports to all three major Credit Bureaus: Experian, TransUnion, and Equifax.
- Be available in your state.
- Offer high loan amounts and favorable loan terms.
- Don’t check your credit history.
- Has positive features and other services.
You can choose the best credit builder loans based on the above factors. We also used the same criteria to compile this list of the best financial institutions.
1. Self Credit Builder Loan
Self, formerly known as Self Lender, has an interactive website that allows users to see how monthly payments affect the overall cost of the loan plan. Credit builder loans offered by Self are also Federal Deposit Insurance Corporation (FDIC) insured.
Over one million people have registered on the Self online platform to build their credit scores. Its program has two main features that draw in many uses. They are the Self Visa Secured Credit Card and four different loan plans. The credit card is secured by your account balance.
Self also has a mobile credit builder app you can download to your phone and control everything in the palm of your hand.
- Up to 4 different credit builder loan plans with varying loan terms to choose from
- You may become eligible for a Visa Secured Credit card after just three months. That helps you grow your credit history with Credit Bureaus even faster.
- No credit history check or any other requirements to apply for a credit builder loan.
- Reports to all three major Credit Bureaus.
- Available in 50 states.
- Interest rates are relatively higher than other lenders.
- Only has a B rating with the Better Business Bureau (BBB).
2. Credit Strong
Credit Strong is one of the online lenders with many credit builder loan terms to choose from. This lender has 7 different plans with monthly payments ranging from $15 to $110. It also has a long repayment period of up to a staggering 120 months.
You can choose to repay your credit builder loan in 12 or 24 months. However, a longer repayment is recommended to help you boost your credit score even more. This will extend your credit history.
The administrative fee you pay at Credit Strong is dependent on your loan plan. It ranges from $8.95 to $25, while the Account Receivables Purchases Schemes (ARPs) is between 5.85% to 14.89%. These are also based on your loan plan of choice.
You can cancel your Credit Strong account at any time. That will also remove the loan proceeds in your locked savings accounts, but you will get a small fraction. That’s because of high-interest rates for the first few months of your loan term.
Credit Strong has a credit loan building app and grants you free access to your FICO 8 score. You can create your credit-builder account provided you have a phone number and Google Voice account.
- Available in all states except Vermont and Wisconsin.
- No credit history check or pre-qualifications to apply for a credit builder loan.
- Reports to all three major Credit Bureaus.
- Has up to 7 different credit builder loan plans to choose from.
- Plans with lower monthly payments take the longest time, which increases your interest cost.
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MoneyLion is a credit-building app. It is one of the online credit lenders you can trust to get part of your loan proceeds immediately. That is where it differs from other credit builder loans.
MoneyLion allows you to borrow up to $1,000 and repay it in 12 months in weekly, biweekly, or monthly installments. It requires $19.99 monthly membership fees, making it one of the most expensive credit builder loans on this list. But it also offers some of the most extensive services of all.
The MoneyLion’s RearMoney system allows you to get your paycheck two days earlier. You can also draw your interest-free cash advances of $300 per pay. Additionally, your credit loan builder account allows you to open a Robo-advisor investment account with a minimum deposit of $5.
RearMoney also gives you access to over 55,000 in-network ATMs with your debit card. Those with this credit card get greater credit score boosts of up to 42 points in just 60 days.
MoneyLion compensates for its high membership fee with many add-ons that make it a worthy credit-builder account for you.
- Loan proceeds are accessible immediately.
- Comes with many other services and add-ons, such as a visa card with cashback rewards and a Robo-advisor investment plan.
- High cash advances on a paycheck.
- Zero percent APR.
- High monthly membership fees of $19.99.
- Not available in many states.
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SeedFi is another credit builder loan that helps you to increase your savings. Its main advantage is the low monthly payments of as low as $10, but the loan amount is also generally low. You can also choose to repay weekly, bi-weekly, or monthly and set the payment dates according to your income.
SeedFi is about the most affordable credit builder loan. You pay a low monthly membership fee of just $1 and APRs ranging from 4.03% to 5.26%. However, you should not expect these small values to significantly improve your credit history as much as other credit builder loans on this list.
- You can choose the monthly payment plan and date that works for you.
- Low APRs and monthly membership fees.
- Reports to all three major Credit Bureaus.
- Low loan amounts – capped at $500.
- Only available in 33 states.
- You should have earned at least $10,000 in annual take-home income to be considered.
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5. Digital Federal Credit Union
As the name suggests, Digital Federal Credit Union is a credit union that provides credit builder loans to customers throughout the United States. It boasts a high loan amount of up to $3,000 with a flexible monthly loan term ranging from 12 to 24 months. Digital Federal Credit Union also has a fixed APR of 5%.
Digital Federal Credit Union offers one of the best credit builder loans with many advantages. You get the chance to become a member of a credit union. It may allow you to access credit cards, loans, home mortgages, and certificates of deposit.
Digital Federal Credit Union also pays a dividend on your savings, which partially offsets the APR you pay on your loan. It also doesn’t charge an administration fee. So, the only thing requires is just a monthly payment of $21.94.
- High loan amounts of up to $3,000.
- Low APR at the end of the credit builder loan term – dividends paid on the savings account partially offsets it.
- No administration fees for a credit builder loan from a federal credit union.
- Reports to all three Credit Bureaus.
- Available in all 50 states.
- You should create a deposit account with DCU to qualify for the credit builder loan.
6. Metro Credit Union
Metro Credit Union offers two high-quality credit builder loans. Its loan terms are the same as many loans for building credit scores. The loan proceeds are held in a locked savings account as collateral and released to the borrower at the end of the loan period.
Metro Credit Union offers one of the best interest rates of just 4.1% and low minimum payment of $21.75. Like Digital Federal Credit Union’s credit builder loans, Metro Credit Union has a loan amount of $3,000 that you can repay in two years.
You can also opt for the Metro Credit Union’s Prosperity Credit-builder Account.
The members enjoy a higher interest rate of 8.2%, a lower minimum payment of $15.72, and longer repayment periods of up to 3 years. It also allows the customer to get a high loan amount of up to 10,000, the highest we have on this list.
- Loan amounts are available for up to $3,000.
- Prosperity credit-builder account holders can access up to $10,000 in borrowed money.
- Low minimum payment fees.
- No admission fees.
- Operates like traditional credit unions, making doing business with them outside the US a big challenge.
7. Fig Loans
Fig Loans is also one of the best credit builder loans, but it is not as effective as others in boosting your credit score. It has the lowest repayment terms of just a year and a relatively low loan amount of $1,000.
Fig Loans have a high-interest rate of 18.85% and low APRs of between 5% and 6% and it does not offer any loan variability. That means you are restricted to the available credit builder loan plan regardless of your financial ability.
Fig Loans also has expensive onboarding fees of $442.50 minimum. However, it compensates for it by reporting your monthly payments to all three credit Unions.
It also offers a unique feature that automatically deactivates your account when you are about to be late by 30 days. That protects you from getting a bad credit score, and you don’t incur any fees.
- Reports to all three credit bureaus.
- Automatic account cancellation to protect your credit history.
- Low APRs of between 5% and 6%.
- Extremely high onboarding fees.
- Fixed loan terms.
- Low loan amounts.
Chime is on this list, but it offers a different credit builder loan. Instead of the physical loan, you get a credit builder card. These cards are less cut and dry compared to loans.
Chime has no fees or interest on the credit builder card, and the credit limit is the money you transfer to the card. That means it has no limit on loan amounts. The system automatically uses your card balance to submit monthly payments.
The Chime’s credit builder card protects you from late loan payments that may affect your credit score. Once you transfer the money to the card, it is locked. Withdrawal is then no longer possible!
- No interest or fees on the card.
- Automatically makes monthly payments – protecting you from late payments.
- No credit card limit.
- This is not an installment loan.
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9. Heartland Bank
Heartland Bank has an A+ BBB rating, making it one of the best financial institutions on this list for credit builder loans.
Heartland Bank offers a Small-Dollar Program that assists borrowers in building or repairing their credit history. The loan proceeds are placed into your Heartland Bank Simply Savings Account and earn interest during repayments.
Heartland Bank offers credit builder loans of between $500 and $1,500 and is held as collateral. Upon successful repayment, the loan amount is made available to you.
- Build credit score and encourages saving.
- Relatively high loan amount.
- 6 months of verifiable income are required to qualify.
- A document fee of $25 is required to close the account.
10. Republic Bank
Like Heartland Bank, Republic Bank also has a credit builder program that can improve your credit history. You can borrow between $500 and $1,500 and complete your loan repayments in up to 24 months. However, it has a low BBB rating of just C-.
The loan funds are held in a certificate of deposit (CD), where they earn interest during the repayment period. You can choose to withdraw your funds after making your last monthly installment or leave them invested in a CD.
That means the Republic Bank helps you build a credit history and encourage investment habits.
The minimum monthly payment is $21.11. The APRs vary depending on your loan terms.
- Offers an investment plan.
- Relatively high loan amounts.
- Flexible loan repayment terms.
- A valid bank account is required.
- Loan proceeds are not available immediately.
- Low BBB rating.
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11. USALLIANCE Financial Credit Union
USALLIANCE Financial Credit Union boasts of a top rating of A+ on BBB. With that credibility, you can rely on credit builder loans the credit union offers to boost your credit score. The loan can be as small as $500 or as high as $2,000, depending on your needs.
The loan borrowed is held in your USALLIANCE account while you make monthly payments. Once done, the funds are released to you, which ultimately builds your credit history.
USALLIANCE Financial Credit Union offers competitive rates and flexible loan repayment terms. Borrowers can pay in 12 months or 24 months.
- High loan amounts.
- Great, competitive rates and flexible loan terms.
- Helps improve credit reports by submitting them to credit Bureaus.
- Limited credit loan plans.
SEFCU is another financial institution on this list you can rely on to get the best credit builder loans. The loan amounts range from $500 to $1,500, one of the highest on this list.
You can repay your SEFCU loan for building credit in 5 years with no minimum repayment period. It offers a low APR of just 0.75%, also the lowest rate we have on this list.
SEFCU charges a low membership fee of $1 and a minimum monthly payment of $35.
- Long loan repayment period.
- Low APRs of 0.75%.
- High loan amounts of up to $3,000.
- The minimum monthly repayment of $35 is on the higher end.
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13. DC Credit Union
DC Credit Union issues an unsecured loan of up to $2,500 and offers coaching on how to use the credit wisely. By making your loan repayment on time, DC Credit Union slowly steps up your loan or credit card limit, which grows your borrowing capacity.
Once you reach a score above 550, you become eligible for traditional loans and financing.
DC Credit Union is not the same as other credit score loans on this list but can still be a good option.
- High loan amounts.
- Free coaching services on how to use the credit.
- High pre-qualification requirements.
- Not effective in promoting credit history as other options.
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