May 26, 2022

Our goal here at Credible Operations, Inc., NMLS Number 1681276, referred to as “Credible” below, is to give you the tools and confidence you need to improve your finances. Although we do promote products from our partner lenders who compensate us for our services, all opinions are our own.

Are you considering using a credit-builder loan to build credit? Read about how they work, their pros and cons and alternative options. (Shutterstock)

If you have minimal or poor credit history, you may have trouble qualifying for financial products, like a mortgage or an auto loan, without a cosigner. And if you’re approved, a lender will likely charge you a higher interest rate than someone with a good credit history. 

A credit-builder loan can be one way to improve your credit standing so that you’ll be able to qualify for better rates and terms in the future. Good credit can make it easier to qualify for products like credit cards and personal loans.

Keep reading to learn more about credit-builder loans, how they work and some other options to consider if you’re working on your credit.

What is a credit-builder loan?

A credit-builder loan is a type of personal loan designed to help you establish or rebuild credit. Unlike a standard personal loan, a lender doesn’t issue you a lump sum of money upfront, which you then repay with interest over time. Instead, the lender deposits the loan amount into a secured account and releases the funds to you after you’ve made…

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