When you have a low credit score or a limited credit history, trying to get any kind of financing can feel like an endless loop. You can’t get access to a loan or credit card without a good score, but you can’t build up a good credit score without having the chance to prove yourself as a borrower.
Enter credit-builder services.
Credit-builder services use small, easy-to-qualify-for loans and credit cards to help you raise your credit score. In most cases, you are using your money to secure the ‘credit,’ so there is little to no risk to the credit-builder company.
The benefit to you as a borrower is that the credit-builder company reports your payments to the credit bureaus. This helps to increase your credit score over time and build your credit history.
While credit-builder companies typically charge fees for their service, these fees are usually reasonable and not something you must pay indefinitely.
Here’s how to build your credit through a credit-builder service.
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Build Your Credit by Paying Your Bills
One of the biggest factors to impact your credit score is your history of making on-time payments. In fact, according to Experian, it counts for 35% of your overall FICO score — that’s more than any other contributing factor.
While ‘on-time payments’ typically refers to payments made against borrowed money, there are now ways to build your credit history just by paying your regular monthly bills.
Credit-builder services such as StellarFi, Cushion, and Bilt will issue you a card (virtual or physical) that you can use as your payment method for your monthly bills. The service will then report those payments to the credit bureaus.
Here’s how each works and how they compare:
StellarFi
With StellarFi, you connect your monthly bills to a StellarFi Bill Pay Card, which acts like a line of credit. This credit line pays your bills and immediately draws the funds from a linked bank account. This means you never carry a balance or pay credit card interest — a distinct advantage over using a traditional credit card.
You also don’t need to undergo a hard credit check when you sign up with StellarFi. However, you may still notice a temporary drop in your credit score when you first join, since the line of credit appears as a new account on your credit reports.
StellarFi reports your monthly payments to Equifax and Experian, and you can check your credit score for free after creating your profile. This way, you have a baseline from which to track your progress.
One downside of StellarFi is that it uses the Vantage 3.0 scoring model instead of FICO. The FICO scoring model is more common and is what most lenders use when they perform a credit check.
StellarFi offers three paid plans (however, the Premium option has not yet launched as of publishing):
- Lite: $4.99 per month. Reports up to $500 in bills as credit.
- Prime: $9.99 per month. Reports up to $25,000 in bills as credit.
- Premium: $29.99 per month. Reports all bills as credit.
Read our full StellarFi review.
Cushion
Cushion could be an ideal option if you frequently use buy now, pay later (BNPL) plans. The Cushion digital app can help you track how much you’ve borrowed, as well as the due dates for all of your payments.
However, the main advantage of Cushion when it comes to credit-building is that the company reports all your payments to Experian.
How it works is Cushion will give you a virtual Cushion card, which you put on file with all your billers. When payment time rolls around, Cushion makes the payment on your behalf and charges your bank account to cover the amount due.
Cushion costs just $4.99 per month. However, you can upgrade for $12.99 monthly to an option that covers all your bill payments, including utilities and subscriptions, and allows you to sync your payments to your preferred calendar.
Bilt
Unlike StellarFi and Cushion, Bilt is actually a credit card but is designed to help you build credit — and even earn rewards — just from paying your rent.
Bilt is a World Elite Mastercard that comes with no annual fee and the ability to earn 1X points on rent payments without a transaction fee (to a maximum of 100,000 points per calendar year).
Normally, if you try to pay rent with a credit card, your landlord will add on a transaction fee that negates any rewards. But with Bilt, they send your landlord a check or bank payment via ACH. This way, your landlord doesn’t see a credit card transaction, and you won’t be charged a transaction fee.
Now, the catch is that not everyone who pays their rent with Bilt can have their rent reported to the credit bureaus. Your landlord will need to be part of the Bilt Alliance — if they are, then your rent payments will be reported to all three credit bureaus.
While Bilt doesn’t have an annual fee, it is still a credit card, which means it charges interest. If you use it to pay your rent, make sure you then pay off that amount on the card each month. Otherwise, you’ll then owe interest on your rent — so while you may be building credit, you’d also be racking up debt.
Build Credit with a Credit-Builder Loan
Credit builder loans are installment loans specifically meant to help you build credit. With this type of credit-builder service, you put down a deposit for your loan amount, which is placed in a secured savings account.
You then make monthly payments against the loan amount. You’re essentially paying back yourself rather than paying back money borrowed from a bank or lender.
Each month, as you pay back your ‘loan,’ the amount decreases and those payments are reported to the credit bureaus. When the loan is paid off, you get back the funds that were placed in the secured savings account — minus any fees. Note that every installment loan will have different terms and conditions, depending on the company.
Several banks and fintech companies, such as Self and Brigit, offer credit-builder loans. Here’s how these two fintech options compare:
Self
Self offers Credit Builder Accounts as well as rent and bill reporting. It also offers a secured credit card, but you must become a credit-builder customer first.
Like all credit-builder loans, with Self’s Credit Builder Account, you don’t actually get any money. Rather, you make monthly payments that are deposited into a bank-held certificate of deposit. Each month, Self reports those payments to all three credit bureaus, helping to build your credit history. At the end of the loan term, you withdraw the amount you’ve deposited, minus interest and fees.
Self’s credit-builder loans come with one term option, of 24 months. However, you can choose how much you want to deposit each month. You can choose a small, medium, large, or extra-large builder plan, with payments ranging from $25 to $150 per month.
There is a one-time admin fee of $9 and a variable annual percentage rate (APR) of over 15% at the time of publishing. As such, when you withdraw your money at the end of your term, you won’t actually get the full amount back, since you’ll have owed interest and fees.
For example, Self says that if you go for the small builder and deposit $25 per month for 24 months, you’ll get back $520 (rather than the full $600) at the end of the loan term. However, this cost may be worth it to you if you’re struggling with poor credit.
Credit Builder Accounts & Certificates of Deposit made/held by Lead Bank, Sunrise Banks, N.A., SouthState Bank, N.A., First Century Bank, N.A., each Member FDIC. Subject to credit approval. Self Visa® Credit Card issued by Lead Bank or SouthState Bank, N.A., each Member FDIC. See self.inc for details. Card eligibility: Active Credit Builder Account in good standing, 3 on time payments, $100 or more in savings progress. Criteria subject to change.
***Sample loans: $25/mo, 24 mos, $9 admin fee, 15.92% APR; $35/mo, 24 mos, $9 admin fee, 15.97% APR; $48/mo, 24 mos, $9 admin fee, 15.72% APR; $150/mo, 24 mos, $9 admin fee, 15.88% APR. See self.inc/pricing
Brigit
Brigit is a personal finance app that offers budgeting tools, account alerts, and — if you sign up for the paid version at $9.99 per month — credit-building loans.
With a Brigit credit-builder loan, you set a monthly deposit amount, which Brigit then deposits for you into an FDIC-insured deposit account. As with all credit-builder loans, you don’t have access to this money until your term period is over — the point isn’t to take out a loan but to demonstrate you can reliably make monthly installment payments.
When you make your loan request, the app will analyze your credit history to determine which repayment term (12 months or 24 months) it thinks will have the most positive effect on your credit score. It does this without performing a hard credit check, so you don’t have to worry about a ding to your score.
Once you’ve been assigned a term, you can set your monthly payment amount. Options are from $1 to $50 for a 12-month term, or $1 to $25 for 24 months. If you go for the max, you’ll have $600 at the end of your term, which you then receive back in full, with no fees or interest withheld — a major advantage of Brigit, as most credit-builder loans do charge interest.
To help you build your credit, Brigit reports your monthly payments to all three credit bureaus. The company says that some users increase their credit score by 60 points (although individual results vary).
Other Ways to Build Credit
You don’t have to use a credit-builder service to build your credit score and history. There are other ways, such as getting a secured credit card or becoming an authorized user on someone else’s credit card.
These options will also report your payment history to the credit bureaus and will help you build credit in a responsible way that won’t put you at risk of accumulating credit card debt.
Get a Secured Credit Card
A secured credit card is a credit card with a safety net — for both you and the lender.
With a typical unsecured card, you get access to a credit amount based on your creditworthiness, which is basically how likely the lender thinks you are to repay, determined by your borrowing history.
But if you don’t have any history (or if you have a negative history), a secured card can help you out. Rather than relying on your creditworthiness, secured credit cards require a cash deposit that’s equal to the amount of your credit card limit. The cash deposit is meant to cover the debt in case you fail to repay what you’ve borrowed.
In addition to protecting the lender from default, the deposit also offers some protection for you as you build up your borrowing habits — since you’ve already put a deposit down upfront, you won’t have to worry about racking up more debt than you can afford.
One catch, however, is that you must pay the card balance in full each month. Failing to do so could cause you to be charged high interest on what you’ve borrowed. Not only that, but it’ll then be a negative mark against your credit, which is the very thing you’re working to improve!
But when used responsibly, secured credit cards can be a great option for building and improving your credit score. They often come with no annual fees and are much easier to qualify for than unsecured cards.
Become an Authorized User
Another way to build your credit is to become an authorized user on someone else’s credit account. If you have a family member or friend who has strong credit and is willing to add you as a user, then you can piggyback off their credit score.
As an authorized user, you get full access to that person’s credit card — so it is risky for both of you. On the one hand, if you use their card and don’t pay it back, you’ll end up creating debt for both of you and dragging their score down. On the other hand, even if you’re responsible and don’t use their card at all, if they suddenly start to default on their payments, your credit score could take a hit, too.
For that reason, you only want to become an authorized user with someone you trust completely. It’s a common tactic for parents to help their children build credit — they’ll add the child as an authorized user, but not give the child access to a physical card or the card number.
✨ Related: Cred.ai Review: Helpful Tools for Building Credit
Are Credit-Builder Services Legit?
Most credit builder services are legit, but you must do the proper research before signing up, as there are plenty of scams. The companies mentioned in this article are legit, but they might not be the right ones for you. I recommend checking ratings and customer reviews online before you sign 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 properly. If you don’t, you may end up hurting your credit score and wasting money.
Who Should Use Credit-Builder Services?
Credit-builder services are advertised to those who have poor credit or those who have no credit history.
And although many services are legit and can help you build credit, they should be used as a last resort. The problem is that they can be expensive when you factor in the monthly fees and interest if it’s charged.
If you have poor credit and are having trouble managing your existing obligations, adding one more payment could make it even more challenging to meet your monthly obligations.
If you have no credit history and can afford the payments, a credit-builder loan will help you build a credit score. But you will eventually need additional items reporting to the bureau; don’t rely exclusively on a credit-builder loan.
Final Thoughts on Credit-Builder Services
Credit-builder services can help you build your credit when used properly, but they’re not for everyone. They are also not a one-size-fits-all solution. You will need to take additional steps to build and maintain good credit.
Be sure to make your monthly bill payments on time and, once you qualify for higher borrowing limits, avoid taking on more credit than you can reasonably manage. If you do these two simple but important things, you’ll be well on your way to building up your credit score and credit history.
Cushion disclaimer: Many factors are involved in your credit score, making the experience and result unique for each individual. Cushion does not guarantee and cannot predict that your credit score will improve by a specific amount, percentage, or at all within a specific period of time or by using Cushion. Credit building is one of several premium features included in Cushion’s paid subscription.
*All Credit Builder Accounts made by Lead Bank, Member FDIC, Equal Housing Lender, Sunrise Banks, N.A. Member FDIC, Equal Housing Lender or Atlantic Capital Bank, N.A. Member FDIC, Equal Housing Lender. Subject to ID Verification. Individual borrowers must be a U.S. Citizen or permanent resident and at least 18 years old. Valid bank account and Social Security Number are required. All loans are subject to consumer report review and approval. All Certificates of Deposit (CD) are deposited in Lead Bank, Member FDIC, Sunrise Banks, N.A., Member FDIC or Atlantic Capital Bank, N.A., Member FDIC.
**Self Visa® Credit Card issued by Lead Bank, First Century Bank, N.A., or SouthState Bank, N.A., each Member FDIC. See Self.inc for details.
***Sample loans: $25/mo, 24 mos, $9 admin fee, 15.92% APR; $35/mo, 24 mos, $9 admin fee, 15.97% APR; $48/mo, 24 mos, $9 admin fee, 15.72% APR; $150/mo, 24 mos, $9 admin fee, 15.88% APR. See self.inc/pricing
****Card eligibility: Active Credit Builder Account in good standing, 3 on-time payments, $100 or more in savings progress, and satisfy income requirements. Requirements are subject to change.
*****Credit Builder Accounts & Certificates of Deposit made/held by Lead Bank, Sunrise Banks, N.A., SouthState Bank, N.A., First Century Bank, N.A., each Member FDIC. Subject to credit approval.
