The full explanation
Unlike a secured card, you do not make an opening deposit: the lender puts the loan amount in a locked savings account and you pay it off in small payments. Then you receive that money, minus any interest or fees. The lender reports your payments to the three nationwide credit reporting companies. In a CFPB study, these loans helped people with no other debts the most.
An example
Andrea takes out a credit-builder loan at her credit union. Each month she pays a small installment; when she finishes, she gets the saved money and has on-time payments on her report.
You will see it in…
- Credit union and bank offers to build credit
- Your credit report, as an installment loan
- Nonprofit credit counseling agencies
