Credit Builder Loan
CreditGlossary term
Definition
A small loan specifically designed to help people build or rebuild their credit history, where the borrowed money is held in a savings account while you make payments. As you make on-time payments, the lender reports your positive payment history to the credit bureaus. Once the loan is fully paid off, you receive the funds, having both improved your credit and built savings.
Related terms
- Secured Credit CardA type of credit card that requires a cash deposit as collateral, which typically becomes your credit limit. Secured cards are designed for people with no credit history or poor credit who want to build or rebuild their scores through responsible use. After demonstrating good payment habits over time, many issuers will upgrade you to an unsecured card and return your deposit.
- Payment HistoryA record of whether you have paid your credit accounts on time, which is the single most important factor in calculating your credit score. Even one late payment can significantly lower your score, and the impact increases with the severity of the delinquency. Consistent on-time payments over many years build a strong credit foundation.
- Thin FileA credit report that contains very little credit history, typically because the person is young, new to the country, or has used very few credit products. Having a thin file makes it difficult to generate a credit score and can lead to loan denials or less favorable terms from lenders. Building credit through secured credit cards, credit builder loans, or becoming an authorized user can help fill out a thin file.
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