Many financial institutions offer credit builder loans, including banks, credit unions, and online lenders. These loans can have different interest rates, loan amounts, fees, and loan payment rules. It’s important to compare your options to make sure you find an affordable loan that reports to the credit reporting agencies and that charges minimal interest and few or no fees.

Best Credit Builder Loans from Banks and Online Lenders

 

Here are some top-rated banks and online lenders that offer credit builder loans.

1) Republic Bank

Republic Bank has a C- BBB rating. They claim that their Credit Builder program may improve your credit score in as little as 12 months, but note that this is not guaranteed. The money you borrow will be placed into a certificate of deposit (CD) where it will earn interest during repayment. You can learn more about the Republic Bank credit builder loan on their website.

LendEDU Rating: 4.21/5

Loan Amount: $500 ­– $1,500

Term Length: 12, 18, or 24 months

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Heartland Bank

Heartland Bank has a A+ BBB rating. The Heartland Bank credit builder loan is part of the bank’s Small Dollar Loan Program. This program is designed to assist you in building or repairing your personal credit. Your funds will be placed into a Heartland Bank Simply Savings Account where you will earn interest during repayment. To learn more about this product, check out their website.

LendEDU Rating: 3.74/5

Loan Amount: $500 – $1,500

Term Length: Not provided

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Self

Self, formerly known as Self Lender, received a B rating with the BBB. The website is interactive and allows you to see how different monthly commitments change the overall cost of your loan. The loan is FDIC insured1 and you can pay off or close your account early. To learn more about the Self credit build loan, check out its website.

LendEDU Rating: 3.70/5

Total amount of payments: $600 – $1,800

Term Length: 12 – 24 months2

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Metro Credit Union

Metro Credit Union has a A+ BBB rating and comes in as the highest rated credit builder loan rated by LendEDU. Loan funds will be deposited into a Metro Savings account where it will earn dividends during the selected term. You can learn more about the Metro Credit Union credit builder loan on its website.

LendEDU Rating: 5/5

Loan Amount: $500 – $3,000

Term Length: Up to 24 months

2) Digital Federal

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Digital Federal Credit Union

Digital Federal Credit Union (DCU) received a A BBB rating. You’ll earn dividends through a DCU Savings account during repayment. The DCU credit builder loan has a rating of 3 out of 5 stars on the DCU website. You can check out these reviews on its website.

LendEDU Rating: 4.79/5

Loan Amount: $500 – $3,000

Term Length: 12 – 24 months

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Digital Federal Credit Union

USALLIANCE Financial Credit Union received a A+ BBB rating. You’ll receive the published rates as long as you enroll in automatic payments. If you don’t, the interest rate is increased by 0.25%. To learn more about the USALLIANCE Financial credit builder loan, check out its website.

LendEDU Rating: 4.75/5

Loan Amount: $500 – $2,000

Term Length: 12 – 24 months

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The Risks of Credit Builder Loans

Credit building loans have undeniable advantages, in that they can help you to develop a positive payment history when you might otherwise be unable to do so. Even so, there are risks associated with these loans too. Here are some of the biggest issues you’ll face.

  • You could hurt your credit if you don’t pay on time: The point of a credit builder loan is to improve your credit score, but this will backfire if you fail to make on-time payments or if you miss your payment due date altogether. You should not take out a credit builder loan unless you are confident that you’re ready to pay your loan when it is due.
  • You could end up paying high fees: Some credit builder loans charge application fees. If you do not pay your bill by the due date, you will likely also need to pay a late fee. These fees could add significant costs.
  • You may pay interest on money you don’t yet have access to: In most cases, the interest rates on credit builder loans are under 10%. But, that’s not always the case. And, paying any interest on money that you cannot access until the loan is repaid can be frustrating because you may feel as though it is a waste of money.

You can mitigate these risks by making a budget that factors in your monthly payments before borrowing, and by shopping around for a lender that offers the most affordable loans possible. Some lenders will even refund the interest you pay as long as you pay back the loan on time.

Tips for Using Credit Builder loans to Improve Your Credit

As mentioned above, credit builder loans can help your credit – but they could also hurt it if you don’t make payments on time. If you’re taking out a credit builder loan to try to boost your score, these tips can help to ensure your efforts are successful:

  • Monitor your credit report to keep tabs on progress: If you check your credit once a month as you pay off your credit builder loan, you can make sure your positive payment history is being properly recorded. You can also check your credit score regularly to see that it’s climbing. This will help you to stay motivated.
  • Pay your credit builder loan on time, every time: It’s imperative that you are never late when you’re paying your credit builder loan as this late payment could cause your score to plummet – especially since you don’t have much of a positive credit history to offset it.
  • Pay off your loan in full by the balance due: You’ll also need to make sure you’ve budgeted enough to pay the full amount of the loan by the repayment deadline.