If you cannot get approved for a credit card, you are in a "Catch-22": You need credit history to get a card, but you need a card to get credit history.
Enter the Credit Builder Loan. Companies like Self, Kikoff, and Credit Strong have productized credit building. It is essentially "Buying a Tradeline."
How It Works: The "Reverse Loan"
In a normal loan, the bank gives you money, and you pay it back. In a Credit Builder Loan, the process is reversed:
- The Setup: The bank locks a sum of money (e.g., $500) in a vault (CD) in your name. You cannot touch it.
- The Payments: You make monthly payments (e.g., $25/month) to the bank.
- The Report: The bank reports these payments to the credit bureaus as an "Installment Loan."
- The Payout: Once you pay the full amount, the bank unlocks the vault and gives you the money back (minus interest/fees).
The Cost Benefit Analysis (The Math)
($25 x 12 Months + Fees)
(Savings unlocked at end)
*Depending on the specific plan & fees
The Verdict
Is it worth paying $20 to $80 just to have a tradeline on your report? The answer depends entirely on your alternatives.
Scenario A: You Can Get a Secured Card
If you have $200 for a deposit, get a Secured Card (like Discover) instead. Why? Because legitimate secured cards have $0 Annual Fees. You build credit for free, and you get your full deposit back.
Read Secured Card StrategyScenario B: You Are Rejected for Everything
If even Secured Cards reject you (due to active bankruptcy or ChexSystems issues), then YES, use a Credit Builder Loan.
Paying $40 a year to add a positive tradeline is a cheap investment. It is much cheaper than paying 25% APR on a car loan because your score was too low.