What is a Credit Builder Loan?

Credit Builder Loans (sometimes called Fresh Start Loans) are a great way to establish credit if you don’t have a credit history. It’s also another tool to bring up a low credit score for a better credit rating. Many smaller institutions will offer these loans to help you boost your credit score or establish a good credit history. Check with your local bank or credit union to get you started on a Credit Builder Loan. 

How Credit Builder Loans work:

You want to buy a new car but you don’t have a credit history. You need to let the lender know that you are good for the loan, and you will repay it on time.  The problem is you don’t have any credit history. Here is where the credit builder loan comes in. The bank or credit union will set up a payment plan to pay back the loan. They typically set up an interest-bearing account like a certificate of deposit that you will pay back each month. 

You can’t actually take out the money until the end of the term is up, usually 12 to 18 months. The monthly payment may be as low as $25 per month. The great thing is you will get into the habit of taking money out of your paycheck to pay yourself first. You will also get used to seeing your paycheck with a little less in it. You may have to adjust your budget or skip out on that coffee from your favorite coffee shop a few times a month.  

Tip: Try brewing coffee at home for just a month. See how much you can save. If you are getting coffee each workday, that means you can save up to  $80 per month! 

You won’t be able to take out the money until your loan is paid. But while you are paying your loan, you are building your credit! At the end of the term, you may take your money out or leave it in to keep growing,


The Credit Builder Loan will not only establish a credit history, but it will also teach you valuable money-saving habits by learning to pay yourself first. If you need a fresh start to increase your credit score or need to establish credit, the credit builder loan just might be what you are looking for!