What we verified in “Credit-builder loans: how they work and what they cost”

Statements and where we checked them

The statements with rules, figures or dates, with the exact place in the source and the date we checked them.

1. According to the CFPB, some loans and credit cards can help you build or rebuild your credit history, and a good history helps you get housing, bank accounts, credit cards and loans, and reduces how much interest you pay; it suggests asking your bank, credit union or local nonprofit credit counseling agency; payments are reported to the three nationwide credit reporting companies, which create a credit report for you, and paying on time, every time, helps you build a strong history; with a credit-builder loan you build credit and savings at the same time, through a loan from your bank or credit union: the money is not yours to spend but is held for you as savings; you make small payments, usually over six to 24 months, and at the end you receive the full amount you paid; with a secured credit card you put in an amount of cash, for example $500, can spend up to that amount and get your spending room back when you pay the bill; and payday loan payments do not help your credit history because they are not reported to the nationwide companies.

   Sources 1 · What are some ways to start or rebuild a good credit history? (last reviewed Sep. 13, 2024): 'Some loans and credit cards can help you safely build, or rebuild, your credit history'; 'Having a history of good credit helps you get housing, bank accounts, credit cards, and loans, and reduces how much interest you pay'; 'Ask your bank, credit union, or local nonprofit credit counseling agency'; 'The payments you make are reported to the three nationwide credit reporting companies'; 'Paying on time, every time, can help you build a strong credit history'; 'You build credit and savings at the same time, through a loan from your bank or credit union'; 'The money is not yours for spending'; 'usually over six to 24 months'; 'At the end of that time, you receive the full amount you paid'; 'You put in an amount of cash, for example $500'; 'When you pay the secured credit card bill, you restore your spending amount back to the amount you put in'; 'a payday loan does not help your credit history because the payments are not reported' · Checked October 17, 2026

2. According to the CFPB's 'Building credit from scratch' handout, with a credit-builder loan financial institutions, typically credit unions, deposit a small 'loan' (often $300 to $1,000) into a locked savings account; you pay the institution back with small payments over 6 to 24 months; those payments are reported to the credit reporting companies; and at the end of the term you receive the accumulated money.

   Sources 2 · Building credit from scratch, 'Credit builder loans': 'Financial institutions, typically credit unions,'; 'deposit a small “loan” (often $300-$1000) into'; 'These payments are reported to the'; 'you receive the accumulated' · Checked October 17, 2026

3. According to a CFPB report from July 2020, the defining feature of a credit-builder loan is that you pay before receiving the funds: when you open it, the lender moves its own money, generally $300 to $1,000, into a locked account; you make payments, including any interest and fees, over a period typically set at 6 to 24 months; the lender reports your payments to Experian, Equifax and TransUnion as a standard installment loan, both positive (under 30 days late) and negative (30 days or more); it deposits principal into your savings account after each payment or all at the end; late payments can harm your score; and if you stop paying, the loan is closed and you are left with a negative mark but no outstanding balance.

   Sources 3 · Targeting credit builder loans (July 2020): 'A CBL’s defining feature is a requirement that borrowers make payments before receiving loan funds'; 'generally in the range of $300 to $1,000'; 'including any interest and fees'; 'installments over a period typically set at 6 to 24 months'; 'positive (<30 days late) and negative (>=30 days late)'; 'Experian, Equifax, and TransUnion'; 'after each payment or in entirety when the borrower completes the program'; 'borrowers who make late payments risk harming their credit scores'; 'Borrowers who fail to make timely repayments have their loans closed, leaving them with a negative mark on their'; 'repayment history but no outstanding balance to repay' · Checked October 17, 2026

4. According to the same CFPB report, in a CFPB-funded study of a credit union's credit-builder loan, the loan worked better for participants without existing debt: among them, opening it increased the likelihood of having a credit score by 24%; it improved scores for people without existing debt but led to a slight decrease, on average, for people with existing debt; 39 percent of those who opened it made at least one late payment; it was associated with more late payments on other loans; and the savings results were less conclusive; so the CFPB says consumers without a score or without debt may benefit most, and those with debt may want to consider paying down other loans first or choosing other products and services, such as credit education or counseling.

   Sources 3 · Targeting credit builder loans, Executive Summary and Key Findings: 'Overall, the CBL proved more effective for participants'; 'opening a CBL increased their'; 'likelihood of having a credit score by 24%'; 'The CBL improved the credit scores of people without existing debt but led to a slight decrease'; 'in scores for people with existing debt, on average'; '39% of participants who opened a CBL made at least one late CBL payment'; 'The CBL is associated with increases in late payments on non-CBL loans'; 'the savings results were'; 'Consumers without a credit score or those with no existing debt may find CBLs especially beneficial'; 'may want to consider paying down other loans before opening a CBL' · Checked October 17, 2026

5. According to the same CFPB report, fees and interest on these loans vary, and risk is a key factor in setting them; on the study's loan they were about $4 per month; and although the core features of these loans are fairly standard, each lender structures its terms and fees its own way.

   Sources 3 · Targeting credit builder loans, Table 2: Credit builder loan structure: 'Risk is a key factor in setting'; 'fees and interest rates'; 'About $4 per month,'; p. 17: 'Although CBLs’ core features are fairly'; 'structure CBL terms and fees' · Checked October 17, 2026

6. According to the CFPB's July 2020 report, more research is needed on whether borrowers tend to withdraw the money lenders deposit into their accounts or save it.

   Sources 3 · Targeting credit builder loans, Executive Summary: 'more research is needed on whether borrowers tend to withdraw the deposits lenders'; 'make into their accounts or save those funds' · Checked October 17, 2026

7. Under Regulation Z (12 CFR §1026.18), on closed-end credit other than mortgages that get a Loan Estimate, the creditor must disclose in writing, among other things, the amount financed, the finance charge ('the dollar amount the credit will cost you'), the annual percentage rate or APR ('the cost of your credit as a yearly rate'), the total of payments ('the amount you will have paid when you have made all scheduled payments'), whether you may be charged for paying early, late payment charges and any security interest.

   Sources 4 · 12 CFR §1026.18: 'For each transaction other than a mortgage transaction subject to § 1026.19(e) and (f)'; (b) 'Amount financed'; (d) 'the dollar amount the credit will cost you'; (e) 'the cost of your credit as a yearly rate'; (h) 'the amount you will have paid when you have made all scheduled payments'; (k) 'whether or not a charge may be imposed for paying all or part of a loan's principal balance'; (l) 'Any dollar or percentage charge that may be imposed before maturity due to a late payment'; (m) 'Security interest' · Checked October 17, 2026

8. Under NCUA's rule on loans to members (12 CFR §701.21(c)(7)), federal credit unions may not lend to members at more than 15 percent per year on the unpaid balance, including all finance charges, unless the NCUA Board sets a higher maximum; the Board decides at least every 18 months whether to allow a higher rate and announces it in a Letter to Federal Credit Unions.

   Sources 5 · 12 CFR §701.21, 'Loans to members and lines of credit to members', (c)(7)(i)–(ii): 'Except when the Board establishes a higher maximum rate, federal credit unions may not extend credit to members at rates exceeding 15 percent per year on the unpaid balance inclusive of all finance charges'; 'At least every 18 months, the Board will determine if federal credit unions may extend credit to members at an interest rate exceeding 15 percent'; 'by issuing a Letter to Federal Credit Unions' · Checked October 17, 2026

9. According to MyCreditUnion.gov, NCUA's consumer site, a credit union is a not-for-profit financial institution that accepts deposits, makes loans and offers other services; it is owned and controlled by its members; members share a common bond, its 'field of membership', and you may be able to join through your employer, your family (most credit unions let members' families join), where you live, work, worship or go to school, or a group such as a place of worship, school, labor union or homeowners' association; and on average credit unions offer higher savings rates and lower loan rates.

   Sources 6 · What is a Credit Union?: 'A credit union is a not-for-profit financial institution that accepts deposits, make loans'; 'Credit unions are owned and controlled by their members'; 'also known as the credit union’s'; 'Most credit unions allow members' families to join'; 'Many credit unions serve anyone that lives, works, worships or attends school in a particular geographic area'; 'such as a place of worship, school, labor union or homeowners' association'; 'On average, credit unions offer higher saving rates and lower loan rates' · Checked October 17, 2026

10. According to MyCreditUnion.gov, the credit union charges daily interest on the balance between your payments, and NCUA regulations let you pay off your loan early without penalties, which reduces the total interest.

    Sources 7 · Consumer Loans & Credit Cards, 'Why does my credit union charge me interest when I request to make a principal-only payment?': 'The credit union is authorized to charge daily interest on the outstanding balance between your payments'; 'NCUA regulations allow you to pay off your loan early without incurring any penalties' · Checked October 17, 2026

11. In a December 2003 legal opinion, NCUA saw no legal impediment to a federal credit union lending to members who use an ITIN or a matrícula consular instead of a Social Security number, as long as it identifies and addresses the risks; and it said it is aware of no law that prohibits a creditor from reporting borrower data by an identification number other than the Social Security number.

    Sources 8 · NCUA Legal Opinion (December 2003), Individual Taxpayer Identification and Matricula Consular Numbers: 'rather than a social security number'; 'We see no legal impediment to this plan'; 'an FCU must be sure to identify and address any risks associated with this initiative'; 'We are aware of no law that prohibits a creditor from reporting borrower data by an identification number other than the social security number' · Checked October 17, 2026

12. According to the Treasury Department's CDFI Fund, CDFI certification is given to specialized organizations that provide financial services in low-income communities and to people who lack access to financing; they include community development banks and credit unions and loan funds; there are certified CDFIs in all 50 states, the District of Columbia, Guam and Puerto Rico; and the Fund publishes the list of certified CDFIs.

    Sources 9 · CDFI Certification: 'specialized organizations that provide financial services in low-income communities and to people who lack access to financing'; 'community development banks and credit unions, and non-regulated institutions like loan and venture capital funds'; 'There are Certified CDFIs in all 50 states, the District of Columbia, Guam, and Puerto Rico'; 'List of Currently Certified CDFIs' · Checked October 17, 2026

13. According to the CFPB, most credit scores treat repayment history as the number one factor; it recommends automatic payments or electronic reminders; it says applying for a lot of credit in a short time may make lenders think you are dealing with setbacks, so apply only for credit you need; and that if you are new to credit, consider products designed to establish it, such as secured credit cards and credit-builder loans.

    Sources 10 · How do I get and keep a good credit score? (last reviewed Dec. 12, 2024): 'Most credit scores consider repayment history as the number one factor'; 'set up automatic payments or electronic reminders'; 'Only apply for credit that you need'; 'it may appear to lenders that you are dealing with financial setbacks'; 'such as secured credit cards and credit builder loans' · Checked October 17, 2026

14. According to the CFPB, a hard inquiry is often a lender's check after you apply for credit, and it affects your score because most scoring models look at how recently and how often you apply for credit; checking your own reports is a soft inquiry and does not affect your score.

    Sources 11 · What is a credit inquiry? (last reviewed Sep. 5, 2025): 'These are often inquiries by lenders after you apply for credit'; 'These inquiries will impact your credit score because most credit scoring models look at how recently and how frequently you apply for credit'; 'your requests for your credit reports. These will not affect your credit scores' · Checked October 17, 2026

15. According to the CFPB, HUD-approved housing counselors advise on buying a home, renting, defaults and credit issues, often at little or no cost.

    Sources 12 · Find a Housing Counselor: 'Housing counselors throughout the country can provide advice on buying a home, renting, defaults, forbearances, foreclosures, and credit issues'; 'often at little or no cost to you' · Checked October 17, 2026