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Credit Builder Loans: A Comprehensive Guide

In a Nutshell: Credit Builder Loans

Looking for ways to build credit? You might notice that a lot of credit-building strategies put your money at stake. Loans require you to take on a lot of debt, and credit cards could lead to overspending and a lower credit score, if not handled smartly.

How can you safely build credit?

Enter the credit builder loan. It’s a loan that’s designed specifically for people with little to no credit. And it can help you boost your score while you sleep. Get everything you need to know in our guide to credit builder loans to see if they’re a good option for you.

What is a Credit Builder Loan?

The name might make it seem obvious, but credit builder loans help you build a credit history. They’re not meant to lend you a lot of money or help you buy something. Instead, they give you a safe way to get started with credit.

How Does a Credit Builder Loan Work?

Although lenders might work a little differently, most credit builder loans work in the same basic way:

Most credit builder loans are microloans, which means they come in small amounts. That makes it easier for you to manage the monthly payment. Where a car loan or credit card bill might take up a lot of your budget, credit builder loans are designed to be affordable.

Are Credit Builder Loans Good?

For a lot of people with little to no credit, yes. As long as you can make your monthly payment, a credit builder loan could help you build a credit history.

The biggest thing that changes your credit score is payment history. So, your credit score should get a little nudge in the right direction with each on-time payment.

Be aware, a credit builder loan doesn’t guarantee success. If you don’t make your payment each month, your score could get dinged for late or missed payments. Choose a low-cost or free loan option so you know you can afford it. You can also set up a monthly reminder on your phone or automatic payments so your payments are always on time.

Why Build Credit with a Credit Builder Loan?

The earlier you can build credit, the better. Think of it like this: You might want to buy a house someday. You’ll need good credit to be approved for a mortgage. And the better your score, the more likely you’ll be to get a lower interest rate. The lower the interest rate, the less money you’re wasting on interest so you have more money to put towards the actual cost of your house.

Credit builder loans give you a chance to start a credit history now, so you’re ready to borrow in the future. They’ll also get you into good money habits that help you keep your credit score high long-term. And best of all, a credit builder loan isn’t going to cost you thousands of dollars in interest or fees just so you can build your credit.

Where Can I Get a Credit Builder Loan?

Most credit builder loans come from small local banks, community credit unions or online lenders. Online lenders, in particular, make it super easy to apply for a credit builder loan.

However, not all loans are created equal. Some loans have interest costs, although you may get that back after paying off the loan. Others have administrative fees that charge you simply to take out the loan.

If you’re worried about interest or fees, look at the no-cost option from Kikoff. Better than a regular loan, Kikoff’s credit builder loan has zero interest and zero fees, and is absolutely free to take out. You’ll receive a microloan and pay it back over your term length without having to worry about interest charges or administrative fees.

Best of all, with a Kikoff loan, you’ll get access to financial advice and your credit score throughout your loan and beyond. Like most credit builder loans, a Kikoff account has high approval rates. It’s designed for people with low or no credit, so there’s no lengthy approval process. As long as you meet some basic criteria, you could be on your way to safely building credit.

How Do I Apply for a Credit Builder Loan?

Like most credit accounts, applying for a credit builder loan means you need to fill out an application. Unlike other types of credit, however, credit builder loans make it easy for almost everyone to get approved.

Follow these steps to apply and use a credit builder loan:

How Much is a Credit Builder Loan?

How much you pay for a credit builder loan depends on your lender. Some companies will charge interest or fees on top of the cost of the loan. You can save money on credit building by using a free option.

Kikoff loans are zero-interest and zero-fee, meaning you don’t have to worry about paying extra for your loan.

Can I Pay a Credit Builder Loan with a Credit Card?

Just because you can do something, doesn’t mean you should. Even if you can pay your credit builder loan with a credit card, it doesn’t make sense to do it.

Think about it: Credit cards charge crazy-high interest rates and a good credit builder loan charges little to no interest. If you pay with a credit card, you’re potentially adding extra interest to your loan payment.

Remember, credit builder loans aren’t supposed to be hard. They’re designed to help you start a credit history and good payment habits in a low-cost way. Choosing a zero-fee and zero-interest loan is the best way to avoid getting in over your head as you build credit.