What Is a Credit Builder Loan?

If you’ve been researching ways to improve your credit, you’ve probably come across the term credit builder loan. If you have thin, no, or a rebuilding credit history, it may be hard to qualify for a traditional loan. 

That’s where credit builder loans come in. They’re designed to help you establish a positive payment history, which is one of the most important factors used to calculate your credit score.  

However, they are different from a traditional personal loan. You still have to make monthly payments, but you don’t access your funds until the end of the term. 

What is a credit builder loan, and how does it work? Knowing these answers can help you decide whether it is the right fit for you. 

What is a credit builder loan?

A credit builder loan is a small installment loan designed to help you add positive payment history to your credit report and boost your score. 

You will not receive the money up front. When you apply for the loan, the lender will let you know how much your monthly installments will be, your total term, and how much money you will receive at the end.

With this type of loan, you are proving your ability to repay the loan before you access the money. Some lenders allow you to access part of the funds up front, but that is not very common. 

You can use credit builder loans as a type of savings tool while you add positive payment history to your financial report. Use the funds to boost your actual savings account, pay off debt, or save for a vacation. 

How credit builder loans work

You have to apply for a credit builder loan, just like you do for a traditional loan. However, your approval odds are higher because there is very little risk to the lender. After all, you will be repaying the loan up front. Here’s how it works:

• The loan amount is placed into a secured account
• Your payments are reported to one or more major credit bureaus 
• You make fixed monthly payments over a set term
• After you finish your payments, you receive the loan, minus any fees or interest 

Pay attention to how much you’ll pay in interest and fees. While paying these fees is normal, you don’t want to take on too many extra charges, as that means less money in your pocket. 

Finding the best credit builder loans for building credit 

There are plenty of options available for credit builder loans. For example, several online platforms allow you to access portions of your funds immediately with a monthly membership.

Alternatively, you can explore credit builder loans from credit unions or banks. Some consumers prefer this route because a credit union offers a full suite of financial services and tools. 

However, partners like Kikoff also offer several other financial tools to help you strengthen your score. With Kikoff, you can report verified rent payments, dispute errors on your credit report, and much more. 

Conclusion

Now that you have an answer to the question, “What are credit builder loans?” you can decide whether they are the right fit for your financial goals. Partnering with a solutions provider like Kikoff opens the door to additional financial tools that can put you back in control of your financial future. 

With Kikoff, you gain access to:

• A free Kikoff credit account
• A paid subscription to Kikoff’s credit service
• Verified rent reporting
• A secured credit card
• Free dispute tools
• Free debt negotiation 
• Bill negotiation, which may include a fee
• Privacy and identity protection plans

Kikoff has an invite-only credit builder loan program designed to help you build a positive payment history and strengthen your score. Our flexible offerings allow you to improve your credit history on your terms. Take a step toward stronger credit habits with Kikoff.