Key takeaways

  • With responsible usage, credit-building products can help you save money while improving your credit score.
  • The interest rates on credit-building products are extremely high but are lower than the average payday loan interest rate.
  • Credit-building tools are only useful if healthy repayment and spending habits are continued in the long-run.

If you have a credit score on the lower end of the spectrum or are just beginning your credit-building journey, then you’re likely familiar with how difficult it can be to get approved for financing options while building your credit.

To help fill this gap in consumer lending, there are lenders that offer products — namely credit cards and loans — to borrowers who wouldn’t otherwise get approved and are actively building their credit.

Products to help build your credit score

Credit-building products allow you to take on a small amount of debt to build up your repayment history and prove to lenders that you’re a reliable borrower. The eligibility criteria is less stringent than with traditional credit and lending products, but the interest rates are often higher due to the lender incurring more risk, so be sure you can make the monthly payments before applying.

Here are some of the best products that can get you the money you need while building your credit score.

Credit builder loan

Credit-building loans are designed to help borrowers with very low or no credit improve their score through making on-time payments. If you’re approved, rather than getting the loan proceeds straight away, the funds will be deposited into an interest-bearing savings account.

You’ll then make a fixed monthly payment for a predetermined repayment period and receive the funds at the end of the loan term (minus any lender or bank fees). The loan amounts are on the smaller side, ranging anywhere from $200 to $2,000 and typically have manageable monthly payments that are reported to the three credit bureaus.

Who it’s best for:
Credit-building loans are best for borrowers who have no credit history or a thin history and are looking for ways to save money while building their credit.

Small dollar loan

As part of the Consumer Protection Act, the small dollar loan program (SDLP) allows financial institutions to offer borrowers with low credit an affordable alternative to high-cost predatory loans. Because they’re covered under the CPA, small dollar loans must meet the following standards:

  • Not be more than $2,500
  • Be repaid in installments
  • Have no prepayment penalties
  • Be reported to a leader at one of the three credit bureaus
  • Meet any other affordability requirements as required by the financial institution

Small dollar loans operate similarly to a traditional loan in that you pay the lump sum balance back in installments, but depending on the financial institution, you may receive the money in increments of $100. The interest rates can either be a fee for how much you borrow or a fixed interest rate. This will likely be higher than a traditional loan, but much less than a payday loan.

Who it’s best for:
Small dollar loans are best for borrowers who have little to no credit and need a smaller loan amount. Designed for the financially underserved, they’re best for those who have considered an emergency or payday loan as a primary option.

Secured credit cards

A secured credit card is ideal for those with bad credit looking to build their score quickly. Operating similarly to putting up collateral on a loan, a secured card will require you to put a refundable deposit down on the balance to minimize the lender’s potential risk should you not be able to make the monthly payments on-time.

Secured cards often come with sky-high rates and low credit lines, so it’s imperative that you not miss a monthly payment to maximize the credit-building benefits.

Who it’s best for:
Borrowers who have the means to put down a security deposit and are certain of their ability to make their monthly payments.

Credit-building apps

Credit-building apps make the process of improving your credit a bit easier. These apps come in a variety and have different focuses but in the end, they all exist to help you build your credit. Some apps provide credit tracking services, while others provide educational resources to help you build — and maintain — your credit.

There are generally three types of apps that you’ll come across:

  • Credit monitoring services that offer suggestions on how to improve your score.
  • Credit-building lenders which offer credit-builder and small dollar loans.
  • Credit reporting services that help boost your credit through alternative reporting.
Who it’s best for:
Borrowers comfortable with using a mobile app and those who are looking for a holistic approach to improving their credit.

Pros and cons of credit-building products

Just like every other financial tool, there are downsides to be aware of when it comes to credit-building products. Among other examples, here are a few of the advantages and disadvantages to be aware of when looking at the ins-and-out of credit-building products and services.


  • Caters to borrowers who wouldn’t otherwise get approved for a card or loan.
  • Can help you build your credit history, improve your score and promote the maintenance of healthy financial habits.
  • Have lessened eligibility requirements and are easier to qualify for.


  • Often come with sky-high interest rates or numerous fees.
  • Most products have small loan or credit limits.
  • Defaulting on a credit-building product will be detrimental to your credit and will impact your ability to qualify for important financial milestones down the road, like an auto loan or a mortgage.

How to choose the best credit-building tool

There isn’t one tool that reigns supreme over the other products; however, some will be more beneficial than others based on your specific needs and what you’re starting with credit-wise.

Before making a final decision on which product is best for you, look at the entire portfolio of products to ensure you choose the one that will not only help you build your credit right now, but will also help you maintain your score in the long-run.