How do credit builder services work and are they legit?

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If you struggle with bad credit or are new to credit, you may have heard of credit builder services as a way to boost your credit score. But how do they work, and are credit builder loans and credit cards legitimate?

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Like anything else, credit builder services aren’t for everyone, but they can be helpful if used correctly. In this article, I’ll explain how credit builder services work, share some examples of companies to consider, as well as some credit builder alternatives.

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Table of Contents What are Credit Builder Services? What is a credit builder loan? What is Credit Builder Credit Card? Where can I get a credit builder loan? Self Credit Strong Cleo Are Credit Builder Services Legit? Who Should Use Credit Builder Services? What are other ways I can build my credit? Secured Credit Cards Secured Loans Get a Co-Signer Final Thoughts on Credit Builder Services What are Credit Builder Services?

Credit builder services offer short, easy-to-use steps to qualify for loans and credit cards to help you boost your credit score. In most cases, you are using your own money to secure ‘credit’, so there is no risk to the credit builder company.

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The advantage to the borrower is that the credit builder app or company reports your payments to the credit bureaus, which over time helps increase your credit score and build your credit history.

While credit builder companies do charge a fee for their service, they are generally reasonable and not something you will have to pay indefinitely.

What is a credit builder loan?

Credit builder loans are installment loans meant to help you build credit. Depending on your company, the installment loan will have different terms and conditions.

However, many credit builder loans use the following model:

Open loan account. The loan funds are kept in a secured savings account. As you make each monthly payment, your loan balance is reduced. Each payment is reported to one or more of the three major credit bureaus. When the loan is paid off, you receive the money in a secured savings vehicle less any interest or fees payable.

Loan and down payment amounts and fees may vary depending on the company you are using.

What is Credit Builder Credit Card?

Credit builder credit cards work similarly to credit builder loans. However, your available loan amount is a revolving balance with the credit card.

Depending on how the credit builder company works, you can make monthly payments on your credit card balance or pay off the balance more often than that.

For example, a standby debit card is a debit card that functions as a credit card. You link the card to your bank account and then use the card to make purchases.

On the next working day, your linked bank account will be debited for the total amount of any purchases made on the previous day to cover additional card spends.

Those purchases are then reported to the three major credit bureaus as credit purchases.

Where can I get a credit builder loan?

Many companies offer credit builder loans. Here are some popular options.


Self offers credit builder loans with tenures ranging from 12 months to 24 months. You can choose a small, medium, large, or extra large loan with payments starting as low as $25 per month.

Your loan amount is kept in a secure bank account till the end of your loan tenure. At that point, you get the loan minus the interest and fees.

When you use your own, you’ll pay a one-time administrative fee of $9 with an interest rate in the 15% range. Swayam also offers credit builder credit cards. Learn more in our full Selfie review.

credit strong
Screenshot of Creditstrong homepage

Creditstrong is another company that offers a credit builder product. For example, Creditstrong’s Install product is an installment loan secured by your savings.

With Install’s Build plan, you can choose to pay $15 or $30 per month, and your loan term can go up to 120 months.

Build & Save plans start at $38 per month. For more information on other Credit Build products, visit the Creditstrong website.

Or, for more details, read our CreditStrong review for more details.

Screenshot of Clio Credit Builder landing page

Cleo combines credit building, budgeting, savings and short-term loans into one app. The Credit Builder Card is a secured Visa card that offers cashback rewards and no interest, and no hard credit inquiries are performed when you apply.

However, you must pay for a Cleo Builder subscription to qualify, which is $14.99 monthly.

Cleo reports your account activity to all three credit bureaus including Experian, Equifax and TransUnion. Because the card is secured, your spending limit cannot exceed the deposit amount.

Check out our Clio review for all the details.

Are Credit Builder Services Legitimate?

Most credit builder services are legitimate, but you should do proper research before signing up, as many are scams. The companies mentioned in this article are legit, but they may not be right for you. I recommend checking ratings and customer reviews online before signing up for any credit builder service.

Also, remember that for any credit builder to serve its purpose, you must follow the necessary steps and use it appropriately. If you don’t, you could end up hurting your credit score and wasting money.

Who Should Use Credit Builder Services?

Credit builder services are advertised for people with bad credit or no credit history.

And although many services are legitimate and can help you build credit, they should be used as a last resort. The problem is that they can get expensive when you factor in the monthly fees and the interest charged.

If you have bad credit and are having trouble managing your current obligations, adding one more payment can make meeting your monthly obligations even more challenging.

If you have no credit history and can make the payments, a credit builder loan will help you build a credit score. But you’ll eventually need to report additional items to the bureau; Don’t rely exclusively on credit builder loans.

What are other ways I can build my credit?

There are other ways to build credit. One, for example, is a secured credit card. You can get secured loans or co-signers for regular loans.

secured credit card

Secured credit cards require a cash deposit equal to your credit card limit. Cash deposits are made to cover non-payment of credit card balances.

You can use the card every month and then pay the balance in full. These cards often have no monthly or annual fees and can be used to improve your credit score.

secured loan

Secured loans are another credit-building option. With a secured loan, you deposit money in a certificate of deposit held by a bank.

The same bank will issue you a loan with an installment payment amount you are comfortable with. Payments are reported to the three major credit bureaus, and your timely payments will help improve your credit.

Your CD funds are released once your loan is paid in full.

get a co-signer

While I don’t recommend it in most situations, if your parent or other close family member is willing to co-sign the loan for you, it will increase your chances of approval and help you make payments over time. Will build credit.

Your co-signer will need to be financially sound with well-established credit. If you default on payments, the financial institution will take steps to ensure that the co-signer can collect the loan alone.

I don’t like this option because it ties both parties financially for an extended period of time, and if something goes wrong, it could damage your relationship with your family member. However, I’m including it because it’s an option.

Final Thoughts on Credit Builder Services

Credit builder services are legal and can help you build your credit when used properly, but they are not for everyone. They are also not a one-size-fits-all solution. You must take additional steps to build and maintain good credit.

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