Targeting credit builder loans
This report presents the results of a Consumer Financial Protection Bureau (CFPB) funded evaluation of a Credit Builder Loan (CBL) product. CBLs are designed for consumers looking to establish a credit score or improve an existing one, while at the same time giving them a chance to build their savings.
The study used random assignment to explore four research questions:
- How does the CBL affect participants’ likelihood of having a credit score?
- For participants who already had a credit score, how does the CBL affect their score?
- How likely are CBL borrowers to make late payments on the CBL and other loans?
- Does the CBL affect participants’ savings balances?
Overall, the CBL proved more effective for participants who entered the study without existing debt, both in terms of helping people establish a credit score and in improving their scores. Taking out a CBL appeared to reduce borrowers’ abilities to keep up on other existing loan payments, even though CBL payments were released immediately back to them. The CBL appears to have helped some participants build savings, but these results were less conclusive than others. The report presents the full results and synthesizes their implications for lenders, financial capability practitioners, and consumers.