If you have no savings and a bad credit score, you know how precarious a situation it can be. Yet, 57% of people with no emergency fund also either have bad credit or no credit score at all. But there is a way to address both of those problems at once. Consider taking out a credit builder loan while you’re on at least semi-solid financial ground. These work differently from regular loans: Instead of getting the loan funds up front, your monthly payments will go into a locked savings or CD account. When you repay the loan, you unlock access to your savings (minus fees and interest) and build your credit, solving two problems at once. It's important to know where your credit stands, especially if you're working to improve it. To do that, you need some way to check up on your credit reports and scores. See our picks for the best credit monitoring services and best places for free credit scores to get started. Best Credit Builder Loans of 2024 Best Credit Builder Loans of 2024 Final Verdict Compare Loans How to Choose FAQs Methodology Pros & Cons Pros Doesn’t charge any fees Helps build revolving credit More flexible loan and payment options Cons Can be confusing to understand Easy to back out before it helps build credit Why We Chose It Credit Karma's Credit Builder account has many advantages because it’s free to use and flexible enough to overcome some of the downsides of traditional credit builder products. However, it will take a bit more work to actively manage. Instead of a loan, it’s actually a line of credit, which helps you build credit in different ways (it may be more useful than the typical credit builder installment loan, in fact). When you sign up for Credit Builder, you get two accounts: a line of credit and a savings account. You’ll set up recurring monthly withdrawals of $10 to $100 from your line of credit into your savings account, which you can’t access until you’ve saved $500. Then, you’ll set up automatic payments from your Credit Karma Money Spend account (which you’ll also need) to pay off the line of credit. You can pause and reset this anytime, such as if you’re going through a temporary budget crunch. You’ll need to do at least one transaction every three months to keep it active, however. You’ll need to keep your credit builder account open for at least six months in order to generate a FICO score, if you don’t already have one. Borrower Qualifications Pros & Cons Pros Monthly FICO score updates Build up to two types of credit Reports to all three credit bureaus Cons Charges a $15–$25 admin fee Not available in Vermont or Wisconsin Revolving credit plan costs $99 per year Why We Chose It When it comes to building credit, longer is better—and Credit Strong offers two of the longest-term credit builder loans around. Instal features loan terms from 24 to 48 months, with monthly payments of $48 to $28, respectively. CS Max loans come with five-year terms and monthly payments of $49 to $199, depending on how much cash you want to save by the end of the loan. In addition to installment debt (i.e., loans with regular monthly payments), Credit Strong also offers Revolv, a $1,000 line of credit (increasable to $3,000) with a $99 yearly fee and 0% interest. This will add revolving credit to your credit reports, another major player that determines your credit score. You can’t use this line of credit to buy things, but you can set up recurring transfers into a savings account that unlocks after a period of time. If you set up automatic payments from your checking account, it’s a no-hassle way to save and build credit at the same time. Borrower Qualifications Pros & Cons Pros No payments for first 60 days Reports to four credit bureaus Cons Can’t use the loan funds until it’s paid off Low interest rate offered on locked funds May be required to join an associated organization Why We Chose It Digital Federal Credit Union (or DCU for short) offers traditional-style credit builder loans. They work like this: You open the loan, DCU puts the loan funds into a locked savings account, and you make monthly payments to pay it off over time. The loan funds will earn interest in the savings account which pays 6.17% APY on the first $1,000 and 0.15% on balances above that threshhold. When you pay off the loan, those funds—plus savings interest—are released to you. As you can see, this loan isn’t intended for borrowing money for a necessary expense—it’s meant as an easy way to start building credit, and DCU even reports to four credit bureaus, instead of the normal three (Experian, Equifax, TransUnion, and Innovis). Borrower Qualifications Pros & Cons Pros No credit check May get access to some funds upfront Reports to all three major credit bureaus Cons Requires a $19.99/month subscription May not get access to full loan until it’s repaid Loan amount depends on your account history Why We Chose It If you like using apps to manage your life, MoneyLion may be a good option. In addition to several other financial products like investments and banking services, MoneyLion also offers a Credit Builder Plus membership option, but it will cost you $19.99/month. This lets you apply for a small loan with no credit check—but be warned, your membership fee doesn’t cover any loan payments. Those will be separate. Depending on how well you manage your regular checking account (you’ll need to allow MoneyLion access to your account in order to apply for the loan), MoneyLion may split your funds up so that some money is available now, and some is unlocked later. The better you are at handling your checking account, the more you’ll get upfront. Borrower Qualifications Pros & Cons Pros Easy standardized loan options Reports to all three credit bureaus Other credit-building options available Cons Charges a $9 admin fee, plus interest Can’t use the loan funds until it’s paid off Why We Chose It If you’re looking for an easy-to-understand credit builder loan with fewer gimmicky upsells, then Self might be a good option for you. It offers four credit builder loan plans to choose from, with pre-set monthly payment amounts and interest rates, ready to go. Once you’ve made three on-time payments and have a $100 balance built up in your savings account, you’re eligible to open up a Self credit card, which can accelerate your credit-building journey. While Self does show one of your credit scores, it’s not the actual credit score that lenders most commonly use (your FICO credit score)—instead, you’ll only get to see your VantageScore. This is usually pretty close to your FICO credit score, so it’s generally a good estimate, but not always. Borrower Qualifications While not a traditional credit builder loan, we consider Credit Karma to be one of the best credit builder loans available today because it’s free, flexible, and helps you build revolving credit. Credit Strong and Self both offer easier-to-understand credit builder loans with optional revolving lines of credit, which can round out your credit profile. Digital Federal Credit Union is relatively accessible to people nationwide, but be sure to check with your local credit unions to see what options, if any, are available for credit builder loans. MoneyLion can be a good option if you may need the loan funds more quickly, but otherwise it’s a relatively expensive product that offers the same thing you can get elsewhere for cheaper. A credit builder loan is a special type of loan designed to help you build credit, rather than giving you money upfront to make a purchase like with a personal loan. Since they’re designed for people with bad credit or no credit, the requirements to get credit builder loans are easier to meet. You’ll usually just need to demonstrate that you can repay the loan and verify your identity, although each lender may have different requirements. When you take out a credit builder loan, your lender will put those funds into a locked savings account or CD instead of paying them out to you directly. Then you will make monthly payments, as you would with a typical loan. Depending on your lender, you might get access to those funds as you pay off your loan, or in a lump sum at the end. Your money may earn interest while it’s sitting in the locked account, although it’ll probably be a very small amount and less than the interest you pay on your loan. (Still, anything helps.) By the time you pay off your loan you’ll have a demonstrated record of payments to kick-start your credit on a positive note, and you’ll have a hefty pot of savings to boot—as long as you make all of your payments on time. It’s a good idea to set your payments on autopay for any loan, but especially for a credit builder loan. It’ll prevent you from paying any late fees and help ensure that you actually do build good credit. It’s important to know that credit builder loans generally do not work like regular loans that give you money when you need it. They’re designed to help you build credit and savings at the same time. Here are some things to think about as you weigh your options:. Pros Helps you build credit and savings at the same time Loan interest rates can be quite low Easier to qualify for than most other loan types Cons Can be confusing Money isn’t usually available until you pay off the loan Statistically more likely to lower your credit score if you have other debt, according to the CFPB (and more likely to increase your score if you have no other debt) If you’re looking to grow your credit score, credit builder loans aren’t always the best method. Here are some other good ways to get started: Most lenders report your payments to the credit bureaus once per month, so it will take at least this long to get started. If you don’t already have any information listed on your credit reports, it’ll take at least six months of payment history before FICO will be able to generate a credit score for you. One study of credit builder loans from the Consumer Financial Protection Bureau looked at how successful credit builder loans were in helping people build credit, and the results were mixed. Borrowers who already had debt actually saw a decrease in their credit scores because they were already financially stressed and thus more likely to miss a loan payment. Borrowers with no debt, however, generally saw their credit scores improve by 60 points after their 12-month loans were up. Most credit builder loans range from $300 to $1,000, although it’s also easy to find lenders that offer higher maximum loan amounts. If you’re not able to make your payments on time (for the loan and other debts) it could damage your credit score just as you’re starting to build it, and this happened to about 39% of borrowers in a study done by the Consumer Financial Protection Bureau. Although the loan funds may be put in an interest-bearing account, the interest you earn is usually less than what you can get with a high-yield savings account on your own. But you don’t risk losing your money—generally, you can back out of the loan at any time and get back any installment payments you’ve made. Yes, you can generally pay off your credit builder loans early. However, unlike other loans, it’s best to continue paying them for their full term because this helps demonstrate a longer record of on-time payments, which is the whole point of the loan. In general, the longer your record of on-time payments, the better it is for your credit. Investopedia is dedicated to providing consumers with unbiased, comprehensive reviews. To rate credit builder loans, we collected hundreds of data points for the top lenders, including loan amounts, APRs, fees, and repayment terms, to ensure that our reviews help users make informed decisions about their banking needs. Article Sources Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in oureditorial policy. Consumer Financial Protection Bureau. "Emergency Savings and Financial Security." Page 24. Credit Karma. "What Is Credit Builder?" Credit Karma. "Better Credit Is on the Horizon." Credit Strong. “Instal and CS Max.” Credit Strong. "Revolv." Credit Strong. "Find My Answers." Click "Is CreditStrong Available in My State?" Digital Federal Credit Union. "Credit Builder Loans." Digital Federal Credit Union. "Primary Savings." Digital Federal Credit Union. "Member Eligibility." MoneyLion. "Get Funds While You Save and Build Credit." MoneyLion. "How Do I Qualify for Credit Builder Plus Membership?" Self. "Your Credit Building Toolkit." Consumer Financial Protection Bureau. "Targeting Credit Builder Loans." Page 3.Best Credit Builder Loans of 2024
Compare Personal Loan Rates with Our Partners at Fiona.com
Best for No Interest Charged : Credit Karma
Best for Long Repayment Terms : Credit Strong
Best Credit Union : Digital Federal Credit Union
Best for Small Loan Amounts : MoneyLion
Best for Large Loan Amounts : Self
Final Verdict
Compare the Best Credit Builder Loans
Loan APR Range Loan Amounts Loan Terms Credit Karma Best for No Interest Charged N/A $1,000 line of credit No fixed loan term Credit Strong Best for Long Repayment Terms 6.99%–15.61% $1,000–$25,000 2–5 years Digital Federal Credit Union Best Credit Union 5.0% $500–$3,000 1–2 years MoneyLion Best for Small Loan Amounts 5.99%–29.99% Up to $1,000 1 year Self Best for Large Loan Amounts 14.14%–15.58% $520–$3,076 2 years Guide to Choosing the Best Credit Builder Loans
What Is a Credit Builder Loan?
Pros and Cons of Credit Builder Loans
Alternatives to Credit Builder Loans
Frequently Asked Questions
How Quickly Will a Credit Builder Loan Build Your Credit?
How Much Can You “Borrow” With a Credit Builder Loan?
What Are the Risks of Credit Builder Loans?
Can You Pay Off Credit Builder Loans Early?
How We Pick the Best Credit Builder Loans
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