Key takeaways

  • There are multiple credit-building products available for those with no established credit history or score.
  • Credit-building tools often come with higher rates and fees than traditional consumer lending products.
  • While your credit score is built on years of responsible usage and repayment, credit- building products can help you get on the right track.

What is a credit-building product?

Credit-building products are tools that help borrowers with low credit or a thin credit history build their credit score. These products typically come in the form of small personal loans or secured credit cards and help grow your credit with consistent on-time payments.

Unlike bad credit loans, these products are designed to give underserved communities (who wouldn’t otherwise get approved) the opportunity to improve their credit score. That being said, not all credit-builders are built the same way. Some require that you pay down the loan to receive the balance while others require collateral.

Increased costs of credit-building products

Since lenders incur more risk by lending to borrowers on the lower side of the credit spectrum, most credit-building tools come with higher rates than traditional lending products, but have lower rates than payday loans.

They may also require you to put back the balance with a form of collateral, like a security deposit. If you default on the loan, then your collateral could be seized to satisfy the delinquent payments.

Regardless of cost and potential risk involved, they function similarly to other loans; if you miss the payments, your credit score will likely suffer as a result. On the other hand, if you prioritize making the monthly payments on-time and in-full, it’s likely that you’ll see your score improve over time.

Pros and cons of each credit-building product

There are multiple credit-building tools available and not every one is created equally. There are some that are dispersed through partnerships between banks and financial outreach organizations, while others are available through lenders and credit unions.

Before making a final decision, consider the ins-and-outs of each option and which could be most beneficial to your financial situation in the long-run.

Small dollar loans

Small dollar loans are offered by six national banks and serve as a lower-cost alternative to payday loans. Available and offered to residents of 35 U.S. states, they’re a highly regulated product and the balance details will vary from state-to-state.

The maximum amount for a small dollar loan comes out to $1,000 or less, but each bank may have its own maximum amount.


  • Lessened eligibility criteria.
  • Given at least three months to repay the balance.
  • Have access to the funds within minutes.


  • Smaller loan maximum amount.
  • Not offered by every national bank or in every state.
  • Need an active checking account to qualify.

Credit-builder loans

Generally offered by smaller community banks and credit unions, credit-builder loans are geared toward borrowers with no credit history who are also looking to bulk up their savings. Unlike small dollar or bad credit loans, you only receive the funds once the final payment is made.

While every financial institution will have different loan details and terms, you can expect your balance to have a maximum of $1,000 and have a repayment term ranging anywhere from six to 24 months.


  • Repayment history and FICO score changes are reported to one or more credit bureaus.
  • Borrowers who don’t have an established credit history can qualify.
  • Some lenders won’t require a hard-credit check to apply.


  • Borrowers with a history of default or bounced checks may not qualify.
  • Not ideal for those who have existing debt.
  • Most institutions also charge fees and related costs in addition to interest.

Secured credit cards

Secured credit cards are offered to those with low to no credit history and are looking to grow their score. Although each card and issuer will have different eligibility requirements, secured cards are generally more accessible than other cards because they’re secured by a refundable security deposit (which also acts as your credit limit).

Paying off your statement in full each month is particularly important with a credit card, as they often have much higher interest rates and more fees than traditional loan options. Once their credit is established, most borrowers will graduate to an unsecured credit card as they often come with lower fees and better rates.


  • Offered to borrowers with limited or no credit history.
  • Credit may increase with regular on-time payments.
  • Lenders may offer cardholder benefits for secured cards, like cash back on certain purchases or points.


  • Require an upfront security deposit.
  • Lower credit limit than most unsecured cards.
  • Likely to be offered higher APRs than with an unsecured card.

Credit-builder apps

Credit-builder apps help you track and grow your credit score through app-dependent educational resources, financial tracking tools and lending options.

Most of these apps organize and streamline the application and repayment process for other credit-building products. Others exist to help you monitor and manage your score on a daily, weekly or monthly basis.


  • Has everything you need from application to repayment in one convenient mobile app.
  • Most offer tools and educational resources to help you maintain good credit health.
  • Some apps will approve those with no established credit.


  • Must have a working Smartphone.
  • Every app has different eligibility criteria and will benefit borrowers differently based on their credit situation.
  • Potential for scammers.

ist-item mb-4″>Potential for scammers.

What is the best way to build my credit?

The best way to build credit is with positive repayment and consistent financial habits. While most of a good score will come with time, making your monthly payments on-time is crucial, especially early on in your credit-building journey.

While no one credit-building option is the best for every borrower, there are things you can do to help grow your score quickly. Paying off existing debt, using a credit-building tool and reporting your utility and rent payments are a few examples of tools that could help you grow your score over time.

Frequently asked questions about credit-builder tools and products

  • Yes, when offered by legitimate institutions and banks, credit-building tools are just as safe as any other loan or card. Make sure to do your research prior to applying and read through the terms and conditions and lookout for tell-tale signs of a scammer or an illegitimate company.
  • You can build your credit instantly with certain apps and products if you’re just starting your credit journey. However, the increases you’ll see shortly after opening an account are short-lived. To see a lasting, substantial increase in your score, it could take several months of healthy habits.If you have a less-than-ideal history, how long it’ll take to boost your credit ultimately depends on the reason your score is lower in the first place.
  • There isn’t one tool or product that stands out as the best among the rest. Every product has its own focus and the best product for you will depend on your current financial need, why your score is lower in the first place and what your long-term goals are.