Best Credit Builder Loans from Credit Unions

By Noah Gomez
Published: 4 August 2024

Credit Unions are in many ways the cornerstone of credit builder loans. Contrary to banks and purely for-profit digital lenders, they are legally structured as member-owned, which means they have a legitimate interest to help consumers. That's not to say banks and online lenders don't provide good options, but there's something to be said for a lending institution whose motivations align with the product they are offering.

The downside to credit unions is that they often have strict membership criteria, including narrow geographical availability or affiliation with local schools and/or companies.

That's why nationwide availability is a requisite for this list. We identified 7 offers available in at least 46 states with below-average interest, competitive term lengths, and flexible principal values. In other words, everyone can find a good match in the offers below.

Comparative Summary of 7 Offers

Vermont State Employees Credit Union | Credit Builder Loan

Avg. APR: 3

Avg. Principal ($): 650

Avg. Duration (mnths): 12

Cooperative Federal Credit Union | Credit Builder Loan

Avg. APR: 3.95

Avg. Principal ($): 1150

Avg. Duration (mnths): 21

Self-Help Federal Credit Union | Credit Builder Loan

Avg. APR: 4

Avg. Principal ($):

Avg. Duration (mnths): 15

Digital Federal Credit Union | Credit Builder Loan

Avg. APR: 5

Avg. Principal ($): 1750

Avg. Duration (mnths): 18

Zing Credit Union | Credit Builder Loan

Avg. APR: 10

Avg. Principal ($): 750

Avg. Duration (mnths): 24

Hope Credit Union | Credit Builder Loan

Avg. APR: 13.25

Avg. Principal ($): 1000

Avg. Duration (mnths): 12

First Tech Federal Credit Union | Credit Builder Loan

Avg. APR: 3

Avg. Principal ($):

Avg. Duration (mnths): 54

#1 Pick

Vermont State Employees Credit Union

Best Overall

Est. APR (%): 3
Avg. Principal ($): 650
Avg. Duration (mnths): 12
Credit Check: Soft Inquiry

Hidden away in Vermont, the state employees credit union often flies under the radar, likely because it's easy to assume they're only available in the state. But VSECU is accessible nationwide via an $8 yearly subscription to the Financial Fitness Association non-profit.

You would be hard pressed to find a credit builder loan in the $300 – $1,000 range over twelve months with a lower interest. The national average for credit-builder is just under 8% and VSECU clocks in at just under 3%, virtually placing it in a class of its own.

This does not include the $8 yearly subscription for out-of-state lenders, but this is tax deductible and also supports a good cost. The net cost of membership + interest is still lower than a big majority of offers even on $1,000 maximum principal.

#2 Pick

Cooperative Federal Credit Union

Best for Low Principal ($300) + Term Flexibility

Est. APR (%): 3.95
Avg. Principal: 1150
Avg. Duration (mnths): 21
Credit Check: Hard Inquiry

Cooperative Federal is available nationwide with a $5 one-time lifetime membership to Inclusive Economy CNY. What makes CFCU unique is the combination of low principal possibilities ($300) and a 6 — 36 month term range. This combo unlocks value for most consumers because you can effectively "build you own" loan that best serves your needs.

The downside to CFCU is that they run a hard inquiry in the approval process. This isn't a terrible thing, but it can cause a few point drop in your score for 6 months to 1 year.

For example, if you have zero credit, going with a $500 loan over 24 months makes a lot of sense. Alternatively, if you have a charge off for $1,000, it makes more sense to opt for a 12 month $1,500 combo.

#3 Pick

Self-Help Federal Credit Union

Best for Soft Inquiry + Term Lengths

Est. APR (%): 4
Avg. Principal ($):
Avg. Duration (mnths): 15
Credit Check: Soft Inquiry

Self-Help's offer has terms comparable to Cooperative Federal (except a 24 month max. term), but it doesn't require a hard inquiry. The absence of a hard pull means this is likely easier to qualify for as well.

Factually speaking, the terms are competitive even on the national stage. At 4%, it's APR is nearly 2x better than the national average. A term range of 6 — 24 months suitable for most consumers, and $500 — $2,000 in principal is also healthy for most of our readers.

The combination of soft inquiry and these terms positions Self-Help as a go-to for anyone with no credit history or small negative marks who also doesn't want a hard pull on their report.

#4 Pick

Digital Federal Credit Union

Best for Continued Banking Needs

Est. APR (%): 5
Avg. Principal ($): 1750
Avg. Duration (mnths): 18
Credit Check: Hard Inquiry

Digital Federal Credit Union is one of the nation's largest, so it's no surprise they offer a credit builder loan. In fact, they offer virtually every consumer financial product, which is why we place them number 4 on our list. If you're unhappy with your current banking institution, you may consider switching to DCU with the credit builder loan then benefiting from all it has to offer.

Objectively speaking, DCU's offer competes with the best of them. At 5% APR, it's far below the national average of 7.78%. A 12 - 24 month term and $500 - $3,000 principal ranges are healthy and serve the needs of most consumers.

#5 Pick

Zing Credit Union

Best for No Credit Check

Est. APR (%): 10
Avg. Principal ($): 750
Avg. Duration (mnths): 24
Credit Check: No Credit Check

Zing charges slightly higher interest than others on the list, but it doesn't run a credit check. This basically means you pay more to avoid the credit pull. For consumers with large or numerous negative marks, this can be a lifesaver.

At 10%, the annual percentage rate Zing applies is only about 2.5% higher than the national average, which seems quite generous given the absence of a credit check. Moreover, principal ranges from $500 - $1,000.

A downside is that this loan is only available for 24 month periods.

#6 Pick

Hope Credit Union

Best for Ideology

Est. APR (%): 13.25
Avg. Principal ($): 1000
Avg. Duration (mnths): 12
Credit Check: Hard Inquiry

Hope is interesting because you can join with $5 dollars and simply "believing" in the credit union's mission. Beyond that, we think it's more or less comparable with many local credit unions, but it's available nationwide.

#7 Pick

First Tech Federal Credit Union

Best Fully-Secured Option

Est. APR (%): 3
Avg. Principal ($):
Avg. Duration (mnths): 12
Credit Check: Hard Inquiry

First Tech Federal's credit builder is called "share-secured," which is a type of fully-secured loan in which you must put the full principal amount of the loan on deposit in order to secure the loan.

The advantage of this structure is that loan principal is virtuously unlimited, as long as you have the savings to back it.

To be clear, so called "share-secured" or "savings-secured" loans are NOT good financing tools. But they can be the most powerful credit-builders for those with healthy cash reserves.

Evaluation Criteria

We base our selection on quantitative information collected and stored in a proprietary database, which represents the largest aggregation of credit builder loans in the world.

To accommodate the largest number of consumers, we assume an optimal loan duration as any term between 6 and 24 months. Additionally, we assume an optimal loan principal between $500 and $3,000, with the most desirable quantity being $1,000.

Exceptions to these ranges would normally be made for the most important loan variable: interest. This list has no conflicts between low loan APR and ideal principal + duration ranges.

Most importantly, the deciding factor for this list is the lending institution being a credit union. As we've stated, many so-called "local credit unions" are counterintuitively available nationwide through a system of non-profit affiliation or belief alignment. Every option on our list is available in at least 46 states.

What is a credit builder loan?

Credit builders are personal loans that help consumers with little or no credit improve their score by applying a combination of flexible eligibility criteria and deferred principal distribution. Lenders include banks, credit unions, and online lenders at an average principal of $3,283 and APR of 7.78%.

Read more here.

Are credit builder loans worth it?

They are worth it if you struggle to get normal personal loans, you have damaged or zero credit history, or you simply have no installment credit on your report.

Critiques sometimes call them gimmicky, but the reality is that they get around a common misconception: that your credit depends on the amount you borrow. It does not. A small principal loan, even with above-average interest, costs pennies compared to the benefits you gain from having positive installment history on your report.

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