Best Way to Build Credit and How Credit Builders Can Help
Best Way to Build Credit and How Credit Builders Can Help
Your credit score is more than just a number — it’s a key that unlocks financial opportunities. That's why building good credit and looking for the right way is crucial. Whether you're applying for a mortgage, renting a car, or even getting a cell phone plan, lenders and service providers check your credit history to evaluate your reliability. A credit card might also be required if you apply for specific jobs, such as financial advisors or firefighters. Therefore, a good credit score also provides you with better career opportunities. But if you're new to credit or rebuilding after setbacks, options like credit cards or traditional loans might feel out of reach. So here is the question: What is the best way to build credit? Credit builder programs offer a structured, low-risk way to grow your score. Let's break down what credit builders are, why they're worth considering, and how to build credit effectively.
What is a Credit Builder Loan?
A financial tool like a credit builder loan is designed to help people establish or improve their credit history. Unlike traditional loans, where you receive money upfront and repay it over time, credit builder loans work backward. Instead of getting cash immediately, you make fixed monthly payments into a secured account held by a financial institution. These payments are reported to the three major credit bureaus — Equifax, Experian, and TransUnion — creating a record of on-time payments that can boost your credit score.
Most credit builder loans are structured as installment loans, meaning you’ll agree to a repayment term (often 12 to 24 months) with consistent monthly payments. The key difference is that you don’t access the loan amount until after completing the payments. Once the term ends, you receive the funds you’ve paid minus any interest or fees. This setup prioritizes building credit over borrowing money, making it ideal for those with no credit history, low scores, or past financial setbacks.
Credit builder loans are accessible to a wide range of people. Many don’t require a credit check for approval, so immigrants, students, or anyone excluded from mainstream financial products can qualify. FDIC-insured accounts often hold payments, ensuring your money stays safe while you build credit. By automating on-time payments and diversifying your credit mix, these loans address two significant factors in your credit score: payment history (35%) and credit mix (10%).
Why Should You Use a Credit Builder?
Building credit without existing credit can feel like a catch-22. Traditional lenders often ask for a credit history to approve you for loans or cards, but you can’t build a history without those products. Credit builders solve this problem by offering a path that doesn’t depend on your past.
One of the most significant advantages of credit builders is their focus on payment history (35%). Late payments can hurt your score, but credit builders automate on-time payments. Every month, your payment is reported to credit bureaus, steadily improving this critical part of your score. For someone rebuilding credit, consistency can offset past mistakes.
Credit builders also help diversify your credit mix (10%). Credit scoring models reward people who manage different types of credit, like installment loans (e.g., car loans) and revolving credit (e.g., credit cards). Adding an installment loan through a credit builder could boost your score if you only have a credit card.
Safety is another benefit. Since your payments go into a secured account (often FDIC-insured), there’s no risk of overspending or debt spirals. You’re effectively saving money while building credit, making it ideal for cautious borrowers or those who want to avoid credit card temptation.
Finally, credit builders are inclusive. Many accept alternative forms of identification, like Individual Taxpayer Identification Numbers (ITINs), making them accessible to immigrants. They’re also available to people with low incomes or irregular employment, as approval typically doesn’t depend on credit history.
Best Way to Build Credit: Strategies and Tools
Building credit requires a mix of smart habits and the right tools. Here’s how to approach it:
#1 Prioritize On-Time Payments
Your payment history is the most influential factor regarding your credit score. Missing due dates, even for a few days, can cause lasting damage. Automate payments for bills and loans to avoid slip-ups. If you’re using a credit builder, set up autopay to report every payment as “on time.”
#2 Keep Credit Utilization Low
If you have credit cards, aim to use less than 30% of your limit. High balances relative to your limit can signal financial stress.
#3 Add an Installment Loan to Your Profile
Credit scoring models favor a mix of credit types. A credit builder can fill this gap if you don’t have an installment loan. Look for programs that report to all three bureaus to maximize visibility. Over time, this can improve your credit mix and overall score.
#4 Avoid Unnecessary Credit Checks
Applying for loans or multiple credit cards quickly can lower your score. Each application triggers a “hard inquiry,” which stays on your report for two years. Credit builders that don’t require a credit check sidestep this risk.
#5 Monitor Your Progress
Check your credit report regularly for errors or fraud. You’re entitled to free weekly reports from Annual Credit Report. Dispute inaccuracies promptly—they could be dragging your score down.
Credit Builder Option
Let’s return to the question: What is the best way to build credit? While many credit builders are available, tools like Cheers seem to be a good option as it’s designed with features tailored to accessibility and speed. Unlike traditional loans, Cheers doesn’t require a credit check or existing credit history. Here is how it works: you choose a repayment plan (ranging from $600 to $3,600) and make monthly payments plus a fixed 1% interest rate. Payments are reported to all three credit bureaus the next business day, speeding up the credit-building process compared to competitors. You will get your payment back minus a small interest at the end of the loan term.
Funds are held in an FDIC-insured account, so you build savings while improving your score. At the end of the term, you receive your payments minus interest. Cheers is available nationwide, accepts ITINs, and charges no setup or membership fees. For those new to credit or rebuilding, it’s a practical way to establish a payment history and diversify your credit mix.
References:
- Equifax: https://www.equifax.com/
- TransUnion: https://www.transunion.com/
- Experian: https://www.experian.com/blogs/ask-experian/credit-education/improving-credit/how-to-build-credit/
- Federal Deposit Insurance Corporation (FDIC): https://www.fdic.gov/resources/deposit-insurance/
- AnnualCreditReport.com: https://www.annualcreditreport.com
