What is a Credit Builder Loan?

A credit builder loan is a small loan designed specifically to help you build or rebuild your credit score, not to give you extra spending money right away.

Instead of getting the money upfront, the lender usually locks the loan amount in a separate account. You make fixed monthly payments, those on-time payments get reported to the credit bureau, and at the end of the term you get the money (minus fees/interest).

You’re basically “proving” you can handle payments, and your reward is both better credit and a lump sum at the end.

Start With KOHO Essential + Credit Building

KOHO isn’t a bank—We are a financial service company that offers a spending and savings account with a prepaid Mastercard®.

KOHO Essential is designed to work like a no fee monthly account for most people because:

• It has a low monthly plan fee that can be waived when you set up direct deposit or add +$1,000.

• Add Credit Building for $10/month, get a dedicated tradeline with no interest and we report it to Equifax

• Grow your savings with a 2% interest savings rate on your entire balance.

• Earn 1% cash back on groceries, eating & drinking, and transportation.

• Enjoy unlimited transactions (never worry about sending money to someone again).

How a Credit Builder Loan Works (Step by Step)

While details vary by provider, the basic flow is:

1. You’re approved for a small loan amount (for example, $300–$1,500).

2. That money is held in a secure account instead of being given to you right away.

3. You make regular monthly payments (principal + interest/fees) for a set term.

4. Each on-time payment is reported to the credit bureau(s).

5. When you finish the term, you get the loan amount back, often minus fees/interest.

The main goal isn’t the cash, it’s the positive payment history on your credit report.

Is a Credit Builder Loan Right for You?

A credit builder loan can make sense if:

• You have little or no credit history

• You’re rebuilding after past issues (late payments, collections, etc.)

• You want something small and controlled rather than a big credit card or personal loan

It’s less about getting quick cash and more about proving reliability—which is what lenders care about most.

^{*Credit scores are based on complex models involving a variety of factors. Consistent on-time payments help improve scores. Missed or late payments may cause credit scores to decrease. Outcomes may vary among users.}