Credit-builder loans might help if you have no credit, limited credit, or want to improve your score. Here are our picks for the best credit-builder loans.
- Best for low credit scores: Self
- Best for immediate access to money: MoneyLion
- Best for full-service banking: Digital Federal Credit Union
- Best for paying at your own pace: Credit Karma Money™ Credit Builder
- What are credit-builder loans?
- When is a credit-builder loan a good idea?
- Alternatives to credit-builder loans
- FAQs about credit-builder loans
Best for low credit scores: Self
Why a Self personal loan stands out: Even if you have no credit or bad credit, you could get a Self Credit Builder Account ranging from $600 to $3,600 with no hard credit check. Self reports payments to all three credit bureaus, so it can help you build your credit over time.
Pros
- Affordable payment plans starting at $25 per month
- Higher loan amounts than other credit-builder loans
- Option to cancel the loan or pay off the account early
Cons
- Only one repayment term of 24 months
- High APRs compared to personal loans
- Multiple fees
Read our review of Self personal loans to learn more.
Best for immediate access to money: MoneyLion
Why a MoneyLion personal loan stands out: MoneyLion’s Credit Builder Loan lets you borrow up to $1,000 with no credit check. If you’re approved, you can get part of your loan upfront within minutes in a debit card, as long as you pay the Turbo Transfer fee.
Pros
- Weekly credit score updates
- Rewards program
- Highly rated mobile app
Cons
- Charges a membership fee
- Only one 12-month term
- Not available in all states
Read our review of MoneyLion personal loans to learn more.
Best for full-service banking: Digital Federal Credit Union
Why a Digital Federal Credit Union personal loan stands out: Digital Federal Credit Union, or DCU, offers a credit-builder loan and a variety of banking products, like checking, savings, and retirement accounts. Plus, the money you pay into a DCU account for a credit-builder loan earns dividends.
Pros
- Can borrow up to $3,000
- Flexible repayment terms of 12 months to 24 months
- No payments for 60 days upon approval
Cons
- Must become a member
- Can’t access a portion of the funds early
- Fees are unclear
Best for paying at your own pace: Credit Karma Money™ Credit Builder
Why a Credit Karma Money™ Credit Builder personal loan stands out: When you sign up for Credit Builder, Credit Karma opens a line of credit and a savings account in your name. Then, you choose how much to save each pay period and that amount will be transferred from your line of credit into the savings account, helping you pay off the outstanding balance.
Pros
- No fees
- May contribute as little as $10
- Can skip payments if you’re short on cash
Cons
- Must contribute once every 3 months to keep account active
- Can’t access the money until you pay $500 into the account
- Requires a line of credit and savings account
Learn more about Credit Karma Money™ Credit Builder.
What are credit-builder loans?
Offered by some banks, credit unions, and online lenders, credit-builder loans are designed to help build or improve your credit. If you’re approved for one, the funds will be deposited into a locked savings account for a set term.
Then, you’ll make monthly payments to repay your loan and the lender will report them to the credit bureaus. Once your repayment term ends, you’ll get access to some or all of the funds.
Most credit-builder loans range from $300 to $1,000 with repayment terms that range from six to 24 months.
When is a credit-builder loan a good idea?
A credit-builder loan can be a good choice if …
- You want to build a credit history: If you’re young or recently moved to the U.S. and don’t have a credit history, a credit-builder loan can help you establish one.
- You have a low credit score: With a credit-builder loan, you can improve your score and potentially qualify for better rates and terms down the road.
Because a credit-builder loan will keep some or all of your funds locked in a savings account until you pay off your loan, it’s not a good idea if you have an emergency or immediate expense.
Also, if you have good credit, a traditional personal loan with a higher borrowing amount and lower rate might be a better fit.
Alternatives to credit-builder loans
If you decide a credit-builder loan isn’t right for your situation, here are a few alternative options to explore.
- Secured credit cards: A secured credit card can also help improve your credit while you use it to pay for everyday purchases. It requires a fully refundable security deposit that’s usually equal to your credit limit.
- Personal loans: If you have a credit history, you might be eligible for a traditional personal loan with a higher borrowing limit and even a lower rate. A secured personal loan requires collateral, like your savings account, while an unsecured personal loan does not.
- Buy-now, pay-later apps: A BNPL app can help you split the cost of a large purchase, such as furniture or electronics into several equal installments. This way you won’t have to come up with all the money upfront.
Our methodology: How we pick the best personal loans
Credit Karma’s editors evaluate the best personal loans by reviewing key features of dozens of popular lenders. Those features fall into three important categories:
- Affordability: We start by checking if a lender’s rates are competitive: are they higher than average or are they lower than many competitors? From there, we analyze if fees — particularly an origination fee — may make your loan more unaffordable. Last, we’ll check if the lender offers rate discounts for items such as automatic payments that may reduce your rate.
- Customer-friendly features: Taking out a personal loan is a big financial commitment, so we prioritize lenders that make things easier for you. For instance, do they offer a wide range of loan amounts for people with different borrowing needs? Do they offer at least several loan terms to give you more flexibility with your monthly payment? And, crucially, can they fund your loan quickly? A lender will also get bonus points for offering direct payments for debt consolidation or other customer-friendly features.
- Transparency: We believe personal loan terms should be easy to find and decipher. Prequalification, which lets you check what rate you may qualify for without a hard credit inquiry, is particularly important. We also check to see if a lender has been recently penalized by regulators.
Estimate personal loan costs
To better understand the total cost of any personal loans you’re considering, use an online calculator like Credit Karma’s simple loan calculator. A loan calculator can help you estimate your monthly payment and how much you’d pay in interest versus principal over the length of the loan.
FAQs about credit-builder loans
A credit-builder loan is specifically designed to build credit. As long as you make timely payments, the lender will report them to the credit-bureaus, which will help you establish a credit history.
Yes, credit-builder loans do build credit. The caveat is you must make on-time monthly payments and pay off your loan in full.
It may take anywhere from 3 to 6 months to build your credit from scratch. A credit-builder loan can help you start the process.
*Approval Odds are not a guarantee of approval. Credit Karma determines Approval Odds by comparing your credit profile to other Credit Karma members who were approved for the personal loan, or whether you meet certain criteria determined by the lender. Of course, there’s no such thing as a sure thing, but knowing your Approval Odds may help you narrow down your choices. For example, you may not be approved because you don’t meet the lender’s “ability to pay standard” after they verify your income and employment; or, you already have the maximum number of accounts with that specific lender.