Use Credit Builder Loans as a Way to Build Your Credit. Getting credit cards, loans and other types of credit can be difficult for borrowers without a good credit history.
Attempting to get approval for credit can be a kind of Catch-22: Creditors want proof that you have held a credit card well before, but without a credit card already there, it may be difficult to show you a good risk.
The Role of Credit Builder Loans
Credit building loans can help. Using a good credit builder loan will increase your credit score, even if it takes a year to do so.
That might be fine if you don’t need a credit card or mortgage right away. But if you need credit now or are buying a house, one year can be a long time to wait.
Sometimes, credit building loans are offered by community banks and credit unions as the best way to give borrowers the opportunity to show that they can make regular payments and complete loans, and can eventually build or rebuild a positive credit history.
Credit-making accounts work like this: This is a small loan that you pay yourself. You make payments that are stored in an FDIC insured CD account, on your own behalf.
Easy loans to repay
The loan is not about the need for money lent, but to increase your credit score.
Loans can be in small amounts such as $500 to $1,500, or around $5,000. You will make a payment for a loan term that may be a different year or time.
The lender will place payments from the traditional loan builder loan into the deposit certificate, which can then generate interest and be given to the borrower when the loan is repaid. Usually in one year. The Borrower will not have access to money for a certain loan period, such as 12 months.
To be clear – you don’t get a loan amount when closing a loan, like you do with a traditional loan. But get money from a loan maker when you repay the lender completely.
Who needs a credit builder loan?
People who are trying to build credit or rebuild their credit after experiencing major problems such as bankruptcy, may want a credit-building loan. Or loans can help people trying to build credit for the first time in their lives. Like recent college graduates, who have just divorced or new immigrants to the country.
New graduates from universities, for example, who do not have a credit card can use credit building loans to build a positive credit history and then have an easier time to rent an apartment or get a cellphone account. This type of first-time borrower will likely see a greater increase in their credit score than someone who is rebuilding their credit.
A source of income is needed that allows monthly payments of $50 to $100 for the term of the loan. Having an unresolved financial assessment can make it difficult to get a credit builder loan.
If you have an unresolved financial assessment on you, you may find it difficult to get a credit-building loan. Pay the debts first before applying.
Where to get it?In the United States, there are more than 5,600 credit unions spread throughout the country. You can easily try to find one near you.
The importance of credit historyA good credit history is one of the main parts of what will shape your credit score. Do you know payment history makes up 35% of your FICO score?
In the end, a credit builder loan is a good first step and leads to getting an unsecured credit card or a bigger loan like a car loan in a few years.
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