Overheard my friend's mom say she pays $50 a month for a credit builder loan

I was helping them move some furniture last weekend and she was on the phone talking about this loan she took from a credit union for $1000. They hold the money in a savings account while she makes payments. After 12 months she gets the cash back plus her credit score went up 40 points. I asked her about it and she said it's basically a forced savings plan that reports to the bureaus. Has anyone tried one of these? Do they actually work better than just paying your credit card on time?

3 comments

3 Comments

west.richard1mo ago

Used to think these credit builder loans were a bit of a hustle honestly. Figured if you just paid your credit card bill every month your score would go up just the same. But seeing her actual results changed my mind completely. Thing is, these loans add a whole different type of credit mix to your report which is something a single credit card doesn't always do. Plus with the money locked away there's zero chance you miss a payment, which is pretty clever if you struggle with that. Do you think the score bump is mostly from the on time payments or the variety of having a loan on there too?

the_wendy1mo ago

Used to be pretty skeptical about these myself ngl. Thought it was just another way for companies to make money off people trying to fix their credit. But after seeing some real examples I totally get it now. The mix definitely matters more than I realized - having a loan on your report shows lenders you can handle different types of debt, not just a card. Plus the forced savings part is actually smart for folks who need that extra push. I'd say it's probably both things working together, not just one or the other.

simonp761mo ago

Wait did your friend say her credit really jumped 40 points just from that? Cause I tried one of those loans a couple years back and my score went up like 55 points in six months, it honestly worked better than I expected.