How to Choose & Get a Credit Builder Loan

Published: 24 August 2023
Updated: 30 January 2024

Author: Noah Gomez

Credit builder loans (CBLs) provide installment credit to consumers who otherwise cannot get any. They require pre-approval, application and acceptance like any loan, but most of the effort to obtain one comes before applying.

how to get a credit builder loan

The sheer volume of offers and general lack of transparency makes it easy to overpay. For example, we have seen borrowers accept 28% APR when nearby competitors offered 15%. Some offers are well-marketed with pre-approval but are overkill for most profiles.

Moreover, more is not always better with credit builder loans. For example, we have seen borrowers overpay $1,000s and lose 6 months of time by choosing a 12-month unsecured loan when a 6-month payment-secured option would have sufficed. This is why it's worth identifying credit goals and strategically aligning a CBL offer.

Those shopping for CBLs can prevent headaches by mimicking credit building plans, which organize credit mix, amount, and timing to meet your goals. Good plans ensure borrowers bypass avoidable mistakes that cost money and time.

8 Steps to Get a CBL

  1. Browse popular options to understand the market
  2. Determine if your credit is right for CBLs
  3. Prioritize credit building or cash
  4. Decide amount, APR, and duration appropriate for your profile
  5. Find potential bank and credit union lenders in your location
  6. Compare with options in our database
  7. Ensure your choice doesn't violate best practices
  8. Ensure there is no conflict with other accounts
  9. Apply and accept

There are over 500 credit builder loans, but a small number dominate the market. Consumers can benefit from exploring payment-secured CBLs such as and Cheese, fully-secured options such as FreeKick, and unsecured structures like Prosper and Upstart.

Browsing helps consumers understand what unique benefits each offer proposes, and it unveils information that otherwise passes unnoticed. For example, some consumers don't realize their CBL does not report to all three credit bureaus.

Some important elements that surface include APR, loan amounts, duration, credit check, membership criteria, savings interest.

2. Determine Your Eligibility

Some consumer profiles are too strong to benefit from credit builder loans. Consumers must ensure their profile has the technical makeup to benefit, otherwise they spend money and time little or no gain.

In its broadest sense, the ideal CBL borrower has limited, zero, or damaged credit and 5 of fewer active installment accounts. Three specific profiles provide additional context to help consumers choose the most appropriate CBL type for their credit history and cash constraints.

3. Prioritize Cash or Credit

Credit builders are structured in a way that either provides cash upfront or holds loan proceeds in a secured savings account. This structure forces the borrower to choose which is more important: cash or credit.

Those who prioritize cash should focus on unsecured CBLs (which typically have higher eligibility criteria), and borrowers who prioritize credit should focus on secured options.

"Imagine, for example, a friend borrows and never repays you $10 dollars. Until s/he borrows and repays $10 or more, most people would hesitate to trust that friend again."

4. Align APR, Amount & Duration to Profile

Borrowers with limited or no credit history can confidently choose a CBL with average principal because they don't need to counterbalance negative marks.

Those with damaged credit, however, need to align the CBL with their profile. The guiding principle is to match or exceed the amount on derogatory installment accounts.

Matching or exceeding is not a hard rule, but the idea is intuitive. If a borrower shows irresponsible management of $1,000, he must demonstrate reliable management of $1,000 or more to become trustworthy again.

Imagine, for example, John Doe borrows and never repays $10 dollars to Sally Shoemaker. Until he borrows and repays $10 or more with someone else, most people in Sally's shoes would hesitate to lend John money again.

5. Check Local Banks & Credit Unions

Fewer than 20 banks¹ offer credit builder loans, and they are all regional banks. Hundreds of credit unions offer CBLs, but credit unions have restrictive geographical requirements and struggle to provide the user experience and transparency associated with digital providers.

In some cases, however, these institutions provide exceptional terms. Investigating local options has the potential to unveil so-called "hidden gems" unavailable to the mass market. Good credit builder plans do this investigation for consumers to ensure maximum benefit.

6. Compare with Our Database

Credit builder loans are notoriously decentralized, which means consumers may find it difficult to quickly compare offers. Elements such as interest-bearing savings, interest kickbacks, partial upfront distribution, APR, and other decision making factors are hidden in the market.

The benefit of comparing offers within a extensive catalog (available in our free package) ensures consumers access comprehensive material and avoid doing business with low-reputation or unreliable lenders.

One consumer, for example, found a great payment-secured CBL at his local credit union but the lender took 3 months to payout the proceeds.

7. Protect Yourself

Good credit builder loans abide by best practices such as early payoff without penalty, but many lenders lack transparency and share unfavorable conditions after the borrower completes the application process.

Moreover, some lenders can be deceptive. They claim fraudulent activity in order to postpone CBL payouts or charge opaque penalty fees. Here are some items consumers should heed about lenders before accepting:

  • Hard inquiries at time of approval overcast by soft inquiries during pre-approval
  • Not reporting to the 3 national credit bureaus
  • Not distributing cash within 1 week
  • Not paying out within 1 month
  • Penalizing early payoff
  • Penalizing early closure
  • Peddling "savings secured loans" as "credit builder loans"

These are 6 of many concerns weeded out or flagged in each package.

8. Eliminate Profile Conflicts

Credit builder loans work best when consumers incorporate them into credit building plans. For example, consumers with large derogatory marks may need to acquire multiple CBLs, but not at the same time. Others may benefit from zero interest revolving credit combined with a CBL to drive results.

A common mistakes is misaligning loan amount and timing, which can cause frustrating harm to credit reports and temporarily decrease score. This is one of many reasons why strategic long-term plans are important for credit building and lifelong maintenance.

It's easy to set aside credit rebuilding as a secondary concern because it may not impact consumers until they wish to finance a major purchase such as a home/car, start a business, or obtain rewards cards (although low-income consumers may also struggle to be approved to rent).

The idea of investing time into building credit can be a turnoff, but the right package works the details on behalf of the consumer. In other words, they save $1,000s and require minimal effort and usually cost less than $20/month for up to 18 months.

9. Apply & Accept

Once consumers identify the best type of credit builder loan for their profile and ensure they have the best offer, the remaining step is to apply and accept the loan offer.


  1. Gomez, Noah. 2023. Review of Credit Builder Loan Offers Dataset. Thick Credit. July 24, 2023.

CBLs save $1000s in interest

by thickening credit reports.

Find a builder package here.

About the Author

Noah Gomez (founder of Thick Credit) is a transatlantic professional and entrepreneur with 3+ years experience in consumer finance education. He also has 5+ years of experience in corporate finance, including debt financing, M&A, listing preparation, US GAAP and IFRS.

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