Credit-Builder Loans Guide

You get the money from a credit-builder loan after the loan term concludes and you've made all the payments, plus interest. You will not be able to access any of the funds until the credit-builder loan is paid off, unlike with other loans. In other words, you're not actually borrowing money with a credit-builder loan.

If you're looking to get funds right away, you may want to consider getting a personal loan or a credit card. With these options, you'll be able to borrow money within days of being approved. If a personal loan is right for you, you can estimate your potential rates by using the free pre-qualification tool on WalletHub.

A credit-builder loan is an installment loan with fixed monthly payments for someone who wants to rebuild or establish their credit. When you take out a credit-builder loan, the lender puts money into a savings account for you, and you then repay that amount plus interest before receiving the savings account at the end.

During the life of the loan, the lender will report your payment history to the credit bureaus. If you pay on time, the information will help your credit. If you don't pay on time, though, you risk damaging your credit score.

What a Credit-Builder Loan Will & Will Not Do

Most credit-builder loans run from $300 to $1,000, offer loan terms of 6 to 24 months and have an APR range of about 6% to 16%. You still need to pay interest, like with other loans, and you may need to pay a small fee to open the account.

Some lenders may put your money into an interest-bearing account, which can make up for the cost of your APR slightly. Alternatively, lenders might give a partial interest refund. Although you won't get all of your money back, the improvement of your credit is worth it.

You can't actually borrow money with a credit-builder loan. When you get a credit-builder loan, the lender will put $300 to $3,000 into a savings account for you, and you then have to repay the amount plus interest before getting the money in the account at the end of the loan term.

To compare the top-ranked offers, check out WalletHub's picks for the best credit-builder loans.

Some credit-builder loans do a hard inquiry into your credit history when you apply for the loan, which will temporarily damage your credit score, causing it to drop by about 5 to 10 points. However, there are several credit-builder loan providers that will not do a hard pull of your credit.

Credit-Builder Loans With and Without a Hard Inquiry

Before you take out a credit-builder loan, make sure to weigh your other options first. Getting a no credit check personal loan, using a no credit check credit card, or asking for a loan from a friend or family member might work better, depending on your circumstances.

The best credit-builder loans with no credit check are from Self and MoneyLion. Both companies perform only a soft pull of your credit to determine eligibility, which will not damage your credit score or affect it in any way. There is no hard inquiry.

Best Credit-Builder Loans with No Credit Check

Self

Self offers four credit-builder loan plans to choose from. They have monthly payments as low as $25, term lengths from 12 to 24 months, a typical APR of around 16%, and an administration fee of $9. Additionally, a credit-builder loan from Self can help you get access to the Self Visa Credit Card in as little as three months.

MoneyLion

MoneyLion offers a service called Credit-Builder Plus. This service has credit-builder loans of up to $1,000 with a payment timeline of 12 months and an APR range of 5.99% to 29.99%. Unlike other services, MoneyLion offers a portion of your loan funds right away. There is a $19.99 monthly membership fee for Credit-Builder Plus eligibility, though.

If a credit-builder loan isn't right for you, there are other options available. For example, you can compare the best credit cards for building credit as well as personal loans with no credit check on WalletHub.

The best credit unions for credit-builder loans are Alltru Credit Union and Digital Federal Credit Union because of their low APRs and affordable monthly payments. Alltru offers 50% of all the interest paid on the loan back, while an account through Digital Federal earns dividends. You must be a member to get a credit-builder loan from either of these credit unions, though.

Best Credit Unions for Credit-Builder Loans

Alltru Credit Union

Alltru offers 12-month credit-builder loans of $300 to $1,000 with an APR of 12%. If you make all of your payments on time, the company will refund you half of the interest you paid over the life of the loan.

To get a credit builder loan through Alltru, you must become a member. Memberships are open to people who live in St. Louis, St. Louis County or St. Charles County.

Digital Federal Credit Union

Digital Federal offers 12 to 24-month credit-builder loans of $500 to $3,000 with a fixed APR of 5%. With a credit-builder loan from Digital Federal, the money in your savings account will earn dividends.

Anyone can apply online to become a member of the credit union.

Randolph-Brooks Federal Credit Union (RBFCU)

RBFCU offers credit-builder loans of $300 to $2,500 with loan terms from 6 to 36 months. There are no fees associated with an RBFCU credit-builder loan, but you will have to pay interest on the loan. You'll receive a portion of that interest back at the end of the loan.

You can apply online to become a member of RBFCU, but you must live in Texas to become a member.

Final Thoughts

If you're having a hard time getting approved for a credit-builder loan from a credit union, you can also try to get credit-builder loans from banks or online lenders. Plus, good alternatives to credit-builder loans include no credit check personal loans and credit cards for people with no credit. These borrowing options do not require a credit history, and they can help you build credit.

The best credit-builder loans in Texas are from Houston Highway Credit Union because it offers low APRs, loan amounts from $1,000 and monthly credit-bureau reporting. Houston Highway Credit Union will also put the money into an interest-bearing account, which could make up for the cost of your APR slightly. If you make on-time payments with a Houston Highway Credit Union credit-builder loan, your credit score will increase.

Best Credit-Builder Loans in Texas

Houston Highway Credit Union

Houston Highway Credit Union offers credit-builder loans with an APR range of 4% - 6% and term lengths of 8 months. Houston Highway Credit Union does put your money in an interest-bearing account.

You can apply for a credit-builder loan from Houston Highway Credit Union if you are at least 18 years old, have a bank account, have enough income to make monthly payments and are a member of Houston Highway Credit Union. To qualify for a membership, you must be an employee of any sponsors (employers, companies, or an association) that is a current SEG (Select Employee Group) with Houston Highway Credit Union, or any close relative of a member.

Associated Credit Union of Texas

Associated Credit Union of Texas offers credit-builder loans with an APR of 9.99% and term lengths of 6 months. Associated Credit Union of Texas does put your money in an interest-bearing account.

You can apply for a credit-builder loan from Associated Credit Union of Texas if you are at least 18 years old, have a bank account, have enough income to make monthly payments and are a member of Associated Credit Union of Texas. To qualify for a membership, you must live, work, worship or attend school in Austin, Brazoria, Brazos, Burleson, Chambers, Fayette, Fort Bend, Galveston, Grimes, Harris, Lee, Liberty, Matagorda, Montgomery, Waller, Washington, or Wharton Counties or within a 10-mile radius of one of their branch locations.

RBFCU

RBFCU offers credit-builder loans with an APR range of 7.700% - 17.900% and term lengths of 6 - 36 months. RBFCU does put your money in an interest-bearing account.

You can apply for a credit-builder loan from RBFCU if you are at least 18 years old, have a bank account and have enough income to make monthly payments. a

Final Thoughts

You aren't guaranteed to get all of your money back when your credit-builder loan term ends, due to interest payments and fees. But the improvement in your credit is worth it. 

If you're having a hard time getting approved for a credit-builder loan in Texas there are other options available to you. For example, you can check out WalletHub's editors' picks for the best credit cards for building credit, as well as the best personal loans for no credit or bad credit.

To get a credit-builder loan, first compare offers from the few companies that have credit-builder loans, then apply for the best one online. Once you're approved, you'll need to make monthly payments to the lender until the end of the loan term. Credit-builder loans don't require a certain credit score for approval, but you will need enough income to make monthly payments.

How Can You Get a Credit-Builder Loan

1. Find lenders that offer credit-builder loans.

   Not all lenders offer credit-builder loans. The most popular lenders do not, but some smaller banks and credit unions do.

2. Compare loan offers and choose one that's best for you.

   You'll need to compare loan offers based on important factors like APRs and loan lengths. There are also a few special features to look out for. Some lenders offer a partial interest refund, which means the lender may return some of the interest you pay on the loan in the end.

   The lender could also put your money into an interest-bearing account. This way, you may receive some interest on the money in the savings account over the course of the loan.

3. Apply for the loan.

   You can apply for a credit-builder loan online, by phone or in person. Not all options may be available with all lenders, though.

4. Make monthly payments until you can get the money.

   Once you're approved, you'll need to make monthly payments to the lender until the loan term ends. This could take anywhere from 12 to 24 months, and the lender will report your payments to the credit bureaus each month. After you make all of your monthly payments, you'll get the money from the savings account.

The best credit-builder loans in California are from Financial Partners Credit Union because it offers low APRs, loan amounts from $500, and monthly credit-bureau reporting. Financial Partners Credit Union will also put the money into an interest-bearing account, which could make up for the cost of your APR slightly. If you make on-time payments with a Financial Partners Credit Union credit-builder loan, your credit score will increase.

Best Credit-Builder Loans in California

Financial Partners Credit Union

Financial Partners Credit Union offers credit-builder loans with an APR range of 3.10% fixed rate and term lengths of 12 months. Financial Partners Credit Union does put your money in an interest-bearing account.

You can apply for a credit-builder loan from Financial Partners Credit Union if you are at least 18 years old, have a bank account and have enough income to make monthly payments and are a member of Financial Partners Credit Union. To qualify for a membership, you must live, work, or go to school in Los Angeles, Orange, Riverside, or San Diego County; in addition to the City of South San Francisco and Alameda, California or be an employee or retiree of select employer groups.

Altura Credit Union

Altura Credit Union offers credit-builder loans with an APR range of 5.35 % fixed rate and term lengths of [lender 2 term lengths]. Altura Credit Union does put your money in an interest-bearing account.

You can apply for a credit-builder loan from Altura Credit Union if you are at least 18 years old, have a bank account and have enough income to make monthly payments and are a member of Altura Credit Union. To qualify for a membership, you must lives, works, attends school, or worships in any of the following areas: Riverside County, San Diego County, Orange County cities of Anaheim, Garden Grove, Irvine, and Santa Ana, San Bernardino County, cities of Rancho Cucamonga, Ontario and Fontana.

Self

Self offers credit-builder loans with an APR range of 16% fixed rate and term lengths of 12 to 24 months. Self does put your money in an interest-bearing account.

You can apply for a credit-builder loan from Self if you are at least 18 years old, have a bank account and have enough income to make monthly payments and are a member of Self.

Final Thoughts

You aren't guaranteed to get all of your money back when your credit-builder loan term ends, due to interest payments and fees. But the improvement in your credit is worth it.

If you're having a hard time getting approved for a credit-builder loan in California, there are other options available to you. For example, you can check out WalletHub's editors' picks for the best credit cards for building credit, as well as the best personal loans for no credit or bad credit.

Secured credit cards are better than credit-builder loans overall. Both can help you build credit, but secured credit cards are cheaper and easier to find than credit-builder loans and do not force you into debt right away. With a secured credit card, you just have to put down a refundable security deposit before you can begin making purchases.

You can also build credit with a secured card without spending any money, aside from the deposit, which you get back upon closing your account with a $0 balance. With a credit-builder loan, on the other hand, you generally have to make months of payments before you get access to your money.

Secured Credit Cards vs. Credit-Builder Loans

Ultimately, either a credit-builder loan or a secured credit card can help you build credit. If you want more options and the ability to make purchases without having cash on hand, you should consider getting a secured credit card. If you don't want to put up a security deposit, a credit-builder loan may be better for you. You can learn more about secured credit cards and credit-builder loans on WalletHub.