What Is a Credit Builder Loan and Why It Might Be the Smartest Way to Grow Your Credit
What Is a Credit Builder Loan and Why It Might Be the Smartest Way to Grow Your Credit
If you’re asking what is a credit builder loan, it’s a simple way to build credit from scratch. These small loans don’t give you cash upfront—instead, your monthly payments are reported to credit bureaus to help grow your score over time. It’s a smart option for anyone starting out, especially college students like me.
Starting My Credit Journey as a College Student
When I started college, I didn’t think much about my credit score. I figured that as long as I wasn’t borrowing money or getting into debt, I’d be in good shape. But that mindset hit a wall fast—when I applied for off-campus housing and got denied because I had no credit history.
That’s when I asked the question: what is a credit builder loan, and could it help someone like me? I didn’t have credit cards, and I didn’t want one just to build a score. I wanted something safer and more structured. That’s what led me to discover credit builder loans.
What Is a Credit Builder Loan?
If you're asking what is a credit builder loan, you're not alone. It’s a tool designed for people who need to start building credit from the ground up. A credit builder loan is a small loan where the money is held in a savings account while you make monthly payments. Once the loan term ends, you get the money—minus the interest.
You’re not borrowing money to spend. You’re borrowing it to prove you can pay it back consistently. According to the Consumer Financial Protection Bureau, this is especially helpful for people with no existing credit (source).
How Credit Builder Loans Work
Here’s how it goes. You sign up for a loan, choose an amount and a term—often 12 to 24 months. You pay a fixed amount every month. These payments are reported to all three major credit bureaus: Equifax, Experian, and TransUnion. Over time, those reports help you build a credit history.
With Cheers Credit Builder, I found the process smoother than most. They report your first payment the very next business day, instead of waiting a month like other companies. You also don’t need a credit check—just verify your identity and pick a plan that fits your budget. Cheers offers options from $528 to $3,168, with flexible repayment periods.
The Difference Between Credit Builder and Traditional Loans
Traditional loans give you the money first, and then you pay it back. That can be risky if you’re not careful, especially when you're new to managing finances.
A credit builder loan is different. You make the payments first, and only get the money at the end. Since you're not using borrowed cash, it's less likely you'll fall behind.
And unlike some lenders who tack on fees, Cheers makes it simple: no admin or membership charges, just a fixed 1% monthly interest. That made me feel more confident about sticking with it.
Does a Credit Builder Loan Improve Your Credit?
Yes—if you make your payments on time. According to Experian, your payment history makes up 35% of your credit score (source). Every on-time payment shows lenders that you’re reliable.
It also adds variety to your credit profile. If the only thing on your report is a credit card, adding an installment loan like this one can give your score a healthy boost.
How I’m Building Credit with Cheers
After doing some research, I signed up with Cheers Credit Builder. It was fast—just a few clicks and I was in. No hard credit pull, and I liked that my money was kept safe in an FDIC-insured account. I chose an 18-month plan and set up auto-pay so I wouldn’t miss a payment.
What stood out was how fast they started reporting to the bureaus. I could already see activity on my credit report before my second payment even hit.
If you're still wondering what is a credit builder loan, I can say this: it's a smart way to build credit without a credit card or risk of overspending. And it’s helped me start building a score while still in school—something I know will pay off when I graduate.
Final Thoughts
What is a credit builder loan? It’s a stepping stone. For people just starting out—college students, newcomers to the U.S., or anyone rebuilding—it offers a safe and steady way to establish credit.
Cheers makes the process easy. No hidden fees. No credit check. Just a structured path to grow your credit while saving at the same time.
You don’t need a credit card to build credit.
Start building credit the smarter way with Cheers
References:
- CFPB:
https://www.consumerfinance.gov/
- Experian
- NerdWallet: What is a Credit Builder Loan
https://www.nerdwallet.com/article/loans/personal-loans/what-is-credit-builder-loan