Credit Builder Loans: How They Work & How to Get One

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Getting a small personal loan can be a fantastic way to start repairing bad credit or to help improve the diversity of your credit. However, figuring out how to get one of these loans in the first place if you have bad credit might seem intimidating. After all, if you have troubled credit, getting any type of loan may prove to be more difficult.

Luckily, there are certain types of loans that are specifically designed to help you build your credit. You can often qualify for them even if you do not have a credit history and if your credit is poor. These loans are called (you guessed it!) credit builder loans.

Credit Builder Loans for Bad Credit or No Credit

Apply for a Credit Builder Account today!
Self Credit Builder Account
Credit builder loans are a unique way for those who have bad credit to rebuild their credit. One credit builder loan that could work for you is the Credit Builder Account from Self.

There are three things to know about the Self Credit Builder Account. First, it all starts with a straightforward approval and plan selection process with no credit check required. If you opt to go through Self, you will need to have a bank account, debit card, or prepaid card, and a good ChexSystems report.

Second, once you’re approved, you build your credit and savings at the same time by making on-time payments each month. Self reports these payments to the credit bureaus, building your payment history — which makes up 35% of your credit score.

Finally, at the end of your plan, you get the money you have saved back — minus interest and fees.

Picking A Plan That Fits Your Budget

When you sign up for a Credit Builder Account, you’ll need to determine which of Self’s 4 plans is best for you. A good place to start is to consider how much money you can comfortably afford to put away each month.

Small Builder

Medium Builder

Large Builder

X-Large Builder





for 24 months for 24 months for 12 months for 12 months
Total payments: $600 Total payments: $840 Total payments: $576 Total payments: $1800
Get back: $520 Get back: $724 Get back: $539 Get back: $1663
APR: 15.92% APR: 15.97% APR: 15.67% APR: 15.91%
Get started Get started Get started Get started

Interest and Fees

Interest is built into the payments you make each month toward your Credit Builder Account. That way, you can focus on the most important thing: staying on time each month, so you can avoid any potential late fees and keep building credit.

As for fees, we like the fact that the Self Credit Builder Account comes with very few (and highly transparent) fees. There is one fee that is unavoidable and that’s a one-time, non-refundable $9 administrative fee you pay when you open your account.

Another fee you might come across is an expedited payment fee, if you select to pay with a debit card. This fee varies depending on which Credit Builder Account you sign up for. If you pay directly from a checking account there is no payment processing fee. Clearly, that’s the way to go.

Self also doesn’t automatically charge late payment fees. If you are late on a payment, you get a 15-day grace period. Afterward, you do have to pay a fee equal to about 5% of your monthly payment.

Convenient App

To stay on top of your credit, you can download the Self app, which comes at no extra cost and is available for iOS and Android. You can track your score, make payments, check in on your savings progress, and more, all from your phone.

Build Credit With 3 Major Credit Bureaus

Self sends information to all three credit bureaus every month when you make an on-time payment, which allows you to build credit over a period of 12 or 24 months. This is roughly on par for most credit building loans, but it’s nice to have assurances from Self that all three of the major credit bureaus will know about your financial habits.

Unlock the Self Visa® Credit Card

As if that wasn’t enough, Self also gives qualifying customers the ability to unlock a secured credit card. To qualify, you have to make three on-time monthly payments, have at least $100 in savings in your Credit Builder Accountand keep your account in good standing. Once you do, you become eligible for a secured Visa credit card that ties directly into your credit-building efforts.

Over 1,000,000 people have signed up to build their credit and savings simultaneously with Self. Maybe you should, too.

Apply for a Self Credit Builder Account Today!

What Are Credit Builder Loans?

Credit builder loans are a type of loan where the bank holds onto the money borrowed while you make payments on it, thus, building your credit in the process. Typically, these loans are a good option for those who are in need of credit repair or those who are just starting to build their credit.

Your credit score is important in today’s world. Without a good score, it will be difficult to get credit cards, loans for cars, homes, and more. These types of loans can help to ensure you are on the right path. The amount of the loan will vary but is generally between $500 and $1,500.

There are two general types of credit builder loans—secured and unsecured.

Loans Secured by Funds

If you get one of these types of loans, you will not receive the money right away. Instead, the money is put into an account that you are not able to access.

This might be a savings account or a certificate of deposit. You will then make monthly payments on the loan. After you have paid the loan in full, the money will then be released so you can use it.

Loans Secured by Collateral

Another type of secured loan is one that’s secured with collateral. The collateral could be money or a vehicle, for example. You could then receive money and be required to pay off the loan, along with the interest by the end of the loan term.

If you do not pay, you would then have to surrender the collateral to the lending institution. This has a bit more risk with it since you could lose your property.

Unsecured Loans

There are options for unsecured credit builder loans, as well. However, these are harder to qualify for because they are riskier to the lender. Getting approved will generally rely on your credit history.

If you have a somewhat tarnished history you are trying to improve, you might get approved. If you have terrible credit, though, chances of approval are slim. Keep in mind that the interest rates on these loans will often be higher than using a secured credit builder loan, as well.

Where to Find Credit Builder Loans

Now that you have a better idea of what credit builder loans are and how they work, you are probably wondering where you can find them. You are not generally going to find these through the big banks.

However, you can often find them through community banks, nonprofits, and credit unions. They aren’t heavily advertised, though, so you might not realize that your credit union even has this option. Oftentimes they will be called something else such as “Starting Over Loans” or “Fresh Start Loans.”

If you are already a member of a credit union or a community bank, get in touch with them and ask if they offer credit builder loans. If they don’t, you will want to open an account with one that does have this option.

Keep in mind that many times, you will need to have an account in good standing with them for several months before you can apply for a credit builder loan. Ask them about their requirements.

Take some time to explore all of the different available options, and consider Self, which is an online provider of credit builder loans. There are options out there, but they aren’t always easy to find. Put in a little research and find a solution that will work for your needs.

How to Qualify for Credit Builder Loans

It isn’t usually too difficult to qualify for credit builder loans. However, the requirements for qualification will differ from one lender to the next. If you find that you can’t qualify through one lender, search for another. There are options available for just about everyone.

When going through a bank or a credit union, you will need to show that you have proof of stable residence, steady employment, and no recent overdrafts to your account. As mentioned, you will likely need to have had an account with them for several months. If you opt to go through Self, you will need to have a bank account, debit card, or prepaid card, and a good ChexSystems report.

As you can see, you don’t have to have a great credit score for these types of loans. After all, the purpose is to help you build and strengthen your credit. It wouldn’t be fair or make sense if you were required to have good credit before getting one of these loans.

What Do Credit Builder Loans Cost?

One of the important things to remember is that there are costs associated with these types of loans. Naturally, the cost varies from lender to lender.

Typically, if you are getting a secured loan, the interest rates will be under 10%. If you get an unsecured loan, the interest rates could be as high as 30%. There are also administration fees to consider.

Although you are paying interest, whether you get one of the credit builder loans through Self, a bank, or a credit union, it’s still helping your credit to improve.

This means that if you take out a traditional personal loan later, the higher credit score you achieve from the credit builder loan will, in turn, reduce your interest rates going forward. Paying interest to start building a good credit score is worth it.

Of course, when you are getting a credit builder loan, you don’t want to have to pay a ridiculous amount of interest. Spend time comparing the various lenders you are considering to see which ones have the most favorable rates.

How Credit Builder Loans Help Improve Your Credit

You might be wondering just how these types of loans will help you to build your credit. It’s relatively simple. When you take out one of these loans, the lender will report your payment history to the three credit bureaus each month. This will show that you have a loan and that you are making the payments on time.

If you don’t have much in the way of credit, reporting will help you to get on the credit map. Those with no credit will start with a FICO Score XD. This score is provided by FICO and basically uses alternative sources to generate a credit score for those who don’t have any credit history.

After six months of having the loan, you will receive a traditional FICO Score. A VantageScore should provide a score after 30 days.

Those who are trying to improve their credit will find that making the payments will help them to see a boost in their score. Of course, there’s no way to know the exact number of points that the score will improve.

Keep in mind that for credit builder loans to work for you, you need to be paying on time. Do not be late on these payments. Having bad credit is worse than not having any credit at all. If you get behind on one of these loans, even a secured loan, it will end up dropping your score further.

Always Ask

Always make sure you double-check and ask to see whether they report to the bureaus each month. If they don’t, then it’s not a credit builder loan and it will not do your credit score any good. It simply means you are paying on a loan and it isn’t doing anything for you.

Pros and Cons of Credit Builder Loans

Let’s examine the good and the bad associated with secured and unsecured credit builder loans.

Secured Credit Builder Loans


  • You do not need to have good credit, or any credit, to qualify for the loan
  • Interest rates are lower on these than they are with unsecured credit builder loans
  • Making payments on time will help you to improve your credit
  • Since this is an installment loan, it can help with your credit mix


  • You do not have access to the funds because they are frozen in a savings account or certificate of deposit—you can’t access them until all of the payments have been made.
  • The interest rates are lower, but you are still essentially paying money to improve your credit score.

Unsecured Credit Builder Loans


  • You get the loan funds right away
  • On-time payments help improve your credit
  • You will improve your credit mix since this is an installment loan


  • If you have no credit or bad credit, it can be difficult to get
  • The interest rates are higher than with secured credit builder loans

5 Tips for Making Credit Builder Loans Work for You

There are some great benefits to using credit builder loans, but they aren’t without their drawbacks, as you have seen above. Here are some tips that will help to ensure you are getting the most out of your loan.

Tip #1: Choose a Secured Credit Builder Loan

Unless there’s a need for cash right away, it’s better to opt for a secured credit builder loan than an unsecured one. Although it’s nice to have the funds released to you immediately, the interest rates of an unsecured loan may be too high.

Whether you secure the loan with your own money or use a fund-secured loan, you’ll save on interest and still build your credit without the risk.

You must make sure you’re getting an actual credit builder loan. Title loans and payday loans are not credit builder loans. They don’t report to the credit bureaus unless you don’t pay and default on the loan. These are risky and they don’t do anything for you, so avoid them.

Tip #2: Know What You Are Signing

Always take the time to make sure that you read through the contract and that you know what you are signing. You need to know:

  • Interest rate
  • Monthly payment amount and date
  • Length of the loan
  • What the overall cost will be
  • Late payment fees
  • When late payments are reported to the credit bureaus
  • What happens if you default on the loan

Tip #3: Always Pay on Time

This is essential. You need to pay on time each month. Even if you have just a single late payment, there’s the potential that it can drop your credit score by as much as 100 points. While this might not seem fair, it’s the system that’s in place. Always pay on time or it will come back to haunt you.

If you worry that you might not be able to pay the loan on time, it is better to hold off on getting one of these loans until you are more financially stable.

Tip #4: Don’t Pay It Off Early

You might be in a good financial position and be tempted to pay off your credit builder loan early. Even though you might save on interest, you will reduce the number of payments you are making, which may mean you do not realize the full potential or benefits of the credit building loan.

This advice is only for these credit builder loans. With traditional loans or credit cards, it’s always a good idea to pay off your debt as soon as you can.

Tip #5: Get a Secured Credit Card

Credit builder loans are great, but you can improve your credit score further when you also get a secured credit card.

This provides you with more opportunities for on-time payments, and it will improve your credit mix. The cards require a deposit, but it’s usually just a couple hundred dollars. They are easy to use and can be a major benefit.


It might take you some time to build your credit, but you can do it, even if you have no credit or terrible credit right now. Use the tips in this article to help you get on the path to better credit. It will make a big difference in your future.

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