Credit Builder Loans vs. Mortgages (Home Loans)

Published: 29 October 2023
Updated: 14 February 2024

Author: Noah Gomez

The relationship is best defined as sequential. Mortgages finance the purchase of residential real estate, whereas credit builder loans create strong credit profiles that persuade mortgage lenders to approve applications at low interest rates.

They have different purposes, terms, and requirements. A good comparison helps borrowers use them to reach their financial goals.


Clarification: Credit Builder Loans are NOT Mortgage Builder Loans

Mortgage builder loans, also known as "construction" loans, are installment debt used to finance the construction of a new home, whereas credit builder loans are installment debt used to improve consumer credit profiles, which persuades lenders to offer low-interest mortgages and other debt.

In other words, credit builder loans are an entirely different entity. They help borrowers augment their credit profile and do not finance a purchase except in rare cases.

Takeaway for Consumers

Consumers can use credit builder loans to establish credit history, mix, & age that demonstrate reliability to mortgage lenders, who can then feel confident approving a home loan application at lower interest.

Key Difference

CBL and mortgage agreements have different goals. Credit builder loans have no funding value and instead focus on establishing credit history, whereas mortgages enable the purchase of a specific asset: residential homes.

Key Similarity

Both products focus on helping consumers attain a financial goal using a debt structure called installment as opposed to revolving credit.

Properties Compared

Mortgages and CBLs share properties in 4 areas called consumer highlights, specifications, lender conditions, and credit reporting. This investigation uses these areas as lenses through which borrowers can compare and contrast the products.

Consumer Highlights

  • Purpose
  • Uses
  • Target Borrower
  • Popularity


  • Amount
  • Term
  • Interest & APR
  • Collateral

Lender Conditions

  • Lender Types
  • Lender Opinion

Credit Reporting

  • Impact on Credit

#1 Purpose

Summary. The purpose of mortgages is to purchase a home, whereas the purpose of credit builders is to enhance credit profile.

. Both products focus on helping consumers reach financial goals.

. The purpose of a mortgage is more specific than credit builder loans because they help purchase a specific residential real-estate asset whereas the scope of credit builders is improving credit for any other financial product.

. One type of CBL called unsecured is a funding tool in addition to building tool.

#2 Uses

Summary. Mortgages uses include the purchase of primary or secondary real estate, usually to occupy or rent, whereas credit builder uses are first to improve profile but include the acquisition of high value credit cards & low-rate auto loans, as well as student and business loans depending on the borrower's plan.

. Framed from the perspective of homebuying, both mortgages and credit builder loan uses include earning approval on home loan applications.

. CBL uses extend to all credit products (loans and credit cards).

. Unsecured credit builder loans can fund assets and expenses similar to those available through personal loans.

#3 Target Borrowers

Summary. Consumers are the target audience for CBLs and mortgages, but mortgages target consumer with strong credit whereas CBLs target those who want to improve their profile.

. Both products target consumers — not lenders or business borrowers.

. Credit builder loans focus on consumers with below-average credit reports, whereas mortgages target consumers with thick, reliable profiles.

. There are no exceptions to target borrowers across CBLs and mortgages.

#4 Popularity

Summary. Mortgages are definitively more popular than credit builder loans, representing roughly 80% of total consumer debt, whereas credit builder loans represent an estimated 0.20% of the total.

. There are no similarities in popularity between CBLs and mortgages.

. Mortgages are the single largest consumer loan type, whereas credit builder loans are among the smallest from a percent of total perspective.

. There are no exceptions to popularity metrics because mortgages are categorically more common than credit builder loans.

#5 Amount

Summary. The average home price is $495,100 and the average loan-to-value (LTV) is approximately 75%, making the average mortgage approximately $660,000¹ — whereas the average credit builder loan principal is about $3,000.

. There are no similarities between loan amounts across CBLs and mortgages.

. Mortgages are more than 2 orders of magnitude greater than CBLs on average.

. There are no exceptions to amount.

#6 Term

Summary. The most common mortgage durations are 15 and 30 years, whereas the most common for credit builder loans are 12, 24, 36, and 60 months (1, 2, 3 & 5 years).

. The vast majority of CBL and mortgage product terms do not have any similarities.

. The shortest mortgages last 3 times the duration of the longest credit builder cards.

. Rare credit builder loans such as Magnum by CreditStrong last as long as 120 months.

#7 Interest

Summary. At 6% — 14%, average credit builder loan interest rates are equal to or greater than the historical average mortgage rate of 4.28%.

. Interest rate ranges for credit builder loans and mortgages typically both range between 4% and 15%.

. Credit builder loan interest ranges highs are definitively higher than mortgages, with an approximate 8% difference on the high end.

. There are no notable exceptions to average rate figures between CBLs and mortgages.

#8 Collateral

Summary. Credit builder loans and mortgages are both secured loans, which means they use an asset to back the loan principal in the event of borrower default.

. Simply put, both products are collateralized.

. Credit builder loan collateral is cash-based and progressive with each installment payment, whereas mortgage collateral consists of a lien on the property.

Unsecured credit builder loans do not use collateral.

#9 Lender Types

Summary. Banks and credit unions provide credit builder loans and mortgages, but there are no online mortgage lenders to our knowledge.

. Banks and credit unions offer both loan types.

. Online lenders do not offer mortgages, but they're the best lender type for credit builder loans.

. There are no exceptions to lender type.

#10 Lender Opinion

Summary. Lenders view mortgages as the most important consumer loan because for most it finances the largest asset they will acquire in a lifetime, and they view credit builders as secured personal loans demonstrating responsibility.

. Both mortgages and credit builder loans show as installment credit for lenders.

. Mortgages belong to a specific category that lenders recognize separately, whereas credit builder loans are recognized as secured personal loans.

. There are no exceptions to lender opinion.

#11 Impact on Credit

Summary. Credit builder loans and mortgages impact payment history, credit mix, and account age, but the size of mortgage principal weight heavier on reports.

. The same three credit factors are impacted by mortgages and credit builder loans: payment history, credit mix, and account age.

. Mortgage values weigh more heavily than CBLs because of their size.

. There are no exceptions to credit impact between these products.


Consumer benefit most by starting with credit builder loans to improve their profile so that mortgage lenders feel comfortable approving the loan application at favorable rates.


  1. “Large Bank Credit Card and Mortgage Data.” n.d. Accessed November 4, 2023.

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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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