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Many lenders advertise that they offer “Credit Builder loans”. This is just a blatantly false advertisement. The sole purpose is to get you to open a credit card or take out a loan with them. Don’t do it. I’ll explain why.

There are several different lenders who advertise that they can build your credit – meaning your credit score. These are the different lenders and their advertisements to us:

Chime / Lyft states, “Start building your credit for free.”

Self states, “A fast, free way to improve your credit score.”

Creditkarma, “With Credit Builder, you could improve your credit score…”

Republic Bank states, “Our credit builder program may help you improve your credit

score within as little as 12 months.”

            UUCU, “Credit Builder Loan…will increase your credit score.”

There are many more.  You would think that everyone has a credit builder program.

Opening a new loan in most cases will not improve your credit scores. That is a true statement. Jason had mid-600’s credit scores and he went to Creditkarma to get help with improving their credit scores. Creditkarma suggested he open three credit cards with Upgrade and WebBank. His scores dropped and would only barely nudge higher month after month.

The problem? There are several problems here that are common for most consumers.

  1. Jason did not need to open any accounts.

He had sufficient credit. In fact, he needed to close some of accounts that were hurting his scores from being derogatory, or recently opened. Opening new accounts only prolonged his efforts to improve his scores.

  1. The wrong type of lenders

Opening the credit cards Creditkarma also recommended lowered his score even more because they are with “high-risk” lenders or as the FICO Score refers to them, “Too many finance company accounts.” Once these accounts are on a person’s credit report, they drop a lender’s FICO credit scores for ten years about 12 to 20 points.. That is a long time.

  1. Too many active accounts.

One of the greatest, yet widely unknown, factors in a lender’s FICO Scores is the number of accounts open and the number of accounts with a balance. This will lower scores even more.

What does Jason have to do? He has to payoff and close those three accounts and his scores will recover to levels prior to taking out those accounts.

Credit builder programs are designed to have you open a new account in that lender’s name. In 90% or more of the cases, it will not improve your credit score until it has established a decent history which can mean at least one year.

Don’t fall for these mis-advertisements. They benefit them, not you.

If you think you need to open an account, go to and get your analysis. It will tell you explicitly that you need to open an account. Otherwise, you are wasting your time and money.

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