A credit builder loan holds your payments in a locked savings account while you make them, then releases the funds to you at the end. It's designed to build a payment history on your credit report — not to give you money upfront.
A credit builder loan works in reverse compared to a traditional loan. Instead of receiving money upfront and paying it back, you make fixed monthly payments into a savings account or CD held by the lender. When the loan term ends — typically 12 to 24 months — you receive the accumulated amount (minus any fees and interest). The lender reports your payment activity to one or more of the major credit bureaus each month, which builds your credit history.
Credit builder loans are most commonly offered by credit unions, community banks, and some online lenders. Credit unions in particular have historically used these products to help members with thin credit files establish a track record. Because you're not receiving money upfront, there is typically no hard credit pull or minimal credit check required to qualify.
Both products build credit through reported payment history, but they work differently. A secured card gives you revolving credit (reusable as you pay it down) and requires a deposit upfront. A credit builder loan is an installment product (fixed monthly payments, fixed term) and holds the deposit until the end. Using both can add what credit scorers call 'credit mix' — having both revolving and installment accounts — to your profile, which is a minor positive factor in most scoring models.
Before taking out a credit builder loan, confirm: (1) the lender reports to all three major bureaus (Equifax, Experian, TransUnion), not just one; (2) the total cost in fees and interest is reasonable relative to the loan amount; and (3) you can comfortably afford the monthly payment — a missed payment will damage your score. The FTC's credit basics resource is a useful reference for understanding how payment history gets factored into your report.