5 Best Credit Builder Loans for 2022

Credit

There are several ways credit scores can affect our lives, including interest rates, how much credit we are allowed to borrow, and whether we are approved for a credit card or loan.

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Having poor or no credit can make it difficult to get approved for any credit you may want. However, credit builder loans provide a way to build credit with no credit history and less risk. These types of loans require you to pay them off before you can use them and are paid over a set period.

There are numerous banks, credit unions, and online lenders to choose from, and in this article, we will share some of the best credit builder loans available in 2022.

Self

The first credit builder loan we will review is Self. Founder and CEO, James Garvey, stated, “to get credit, you need to have credit. It’s a catch-22, and the system is set up against you,” and founded Self as a way to address this problem.

Self offers four different credit builder plans:

Plan TypeSmallMediumLargeX-Large
Cost Per Month$25/month$35/month$48/month$150/month
Term24 months24 months12 months12 months
Admin Fee (Single Fee)$9$9$9$9
Total Payments$600$840$576$1,800
Get Back$520$724$539$1,663
Final Cost$89$125$46$146
Interest Rate14.14%14.70%12.44%14.87%
Annual Percentage Rate15.92%15.97%15.65%15.91%

Features:

  • No hard credit pull on your credit report
  • Automated payments
  • Track your credit score
  • Reports to all three major credit bureaus
  • Anytime cancelation
  • Optional secured credit card

Credit Strong

Credit Strong is a branch of Austin Capital Bank and a preeminent community bank. Their credit builder loan is a simple four-step process. First, you must open an Instal account with them. Then, select your plan type, “Build” for credit building or “Build & Save” to save and build credit. Make your monthly payments on time, and finally, unlock your savings account when you close your account or finish paying off your loan.

Within the two types of credit builder loans, there are two different payment options.

First Option:

  • $15/month
  • Lowest cost account
  • $1000 installment account reported
  • Build up to 10 years’ worth of payment history

Second Option:

  • $30/month
  • $2,500 installment account reported
  • Build up to 10 years’ worth of payment history

Features:

  • Anytime cancelation with no penalty
  • Reporting to all three major credit bureaus

MoneyLion

MoneyLion is another credit builder loan and was founded in 2013 to empower Americans rather than capitalize on their hardship. Their loan product, Credit Builder Plus, gives you access to a portion of your loan amount before you pay it off, and the full amount will be available after payment completion.

Credit builder loans take place over twelve months and can go as high as $1000. Be aware that there is a monthly membership fee ($19.99) and some administrative fees.

Features:

  • Early access to a portion of your loan funds
  • Ability to monitor your credit score and progress
  • Reports to all three major credit bureaus
  • Options for rewards

Digital Federal Credit Union or DCU

Digital Federal Credit Union is a not-for-profit financial cooperative owned and operated by its members. DCU offers consumer and business banking as well as insurance for auto, home, and liability.

Their credit builder loans range from $500 to $3000, and terms last from 12 to 24 months. DCU has a fixed annual rate of 5.00%, and their estimated monthly payment (per $1,000) is $43.87. However, both are subject to change if the credit union sees fit.

Features:

  • Establish credit as you repay on time
  • Personal loan calculator
  • Ability to earn dividends from your DCU savings account

SeedFi

SeedFi was founded in 2019 as an alternative to traditional bank loans. Their Credit Builder Prime product works in $500 increments. You set an amount you would like to pay from each paycheck, and SeedFi adds that amount to your credit builder loan. When you reach $500, you can access that money.

SeedFi’s monthly fee is only $1, and the minimum payment ranges from $10-$40. You can expect an APR of 4.03% to 5.26%, and the term ranges from 7 to 27 months.

Features:

  • Automated payments
  • Monthly reports to all three major credit bureaus
  • Interest-free loan
  • No initial credit check

Keep in Mind

There are a few things to remember when searching for a credit builder loan.

You will want to pay attention to the annual percentage rate (APR). The APR is the total daily periodic rate multiplied by the number of times the interest is compounded in a year, and it includes interest and any fees charged to the account. In some cases, you may find that other types of loans, like personal loans, have better APRs than credit builder loans.

Although credit builder loans are designed to help you build positive credit history, they can be detrimental to your credit if you overextend yourself and are unable to make your monthly payments in full and on time. Moreover, on-time payments are not the only component of your credit score. Your credit amount and mix, total debt, credit utilization, credit history length, and more contribute to your credit score.

A credit builder loan is still additional credit, so it may temporarily lower your credit score. Additionally, once you have paid off your credit builder loan, closing your account will decrease the length of your credit history, lowering your credit score in the process.

Conclusion

Credit builder loans may initially lower your credit score; however, over time, they will help you build credit history and raise your credit score. There are several options to choose from, so do your research and pick the best credit builder loan for your situation.

Kiara Taylor
Meet the author

Kiara Taylor is a financial writer and Research Analyst. She is an expert at risk-based modeling having worked in the finance vertical for the past twenty years. She has a Master's Degree in Finance from Ohio State and has worked at Fifth Third Bank, J.P. Morgan, and Citi in emerging markets and equity research.