If you look forward to a financially stable future, you should do all you can to build your credit score. A good credit score increases your chances of getting a lender to help you during a financial crisis, as it confirms your credibility and strengthens your trustworthiness. An individual with a bad credit score has limits to the amount they can borrow, not to mention the high-interest rates attached. Try credit builder loans if you are interested in building or boosting your credit score.
What Are Credit Builder Loans?
A credit builder loan, also known as a starting over loan, helps build credit for individuals without a credit history or strengthen a poor credit score. The approval process is easy and assists those who have had issues with credit. After taking a credit builder loan, you will have better luck with credit cards and loans with no bank-breaking interest. But keep in mind that average credit scores vary with zip codes.
Good credit is not a requirement for a credit builder loan – you just need to earn enough for repayments. It’s a good option if you are new to credit, as you can quickly increase your score with small on-time payments.
How Do Credit Builder Loans Work?
Credit builders are not offered by all loan institutions, as they are limited to community banks, credit unions, and a few online lenders.
After getting loan approval, your money will be kept in a savings account pending the time you complete your payment. You won’t be able to use the funds without paying all you borrowed alongside the interest.
This arrangement will build your credit score while giving you a charged savings account to use during emergencies. Your lender will also be more willing to give out loans since there’s something to fall back on if you fail to repay.
Two to three credit bureaus will be informed each time you make your monthly payments. It could be Experian, Equifax, or TransUnion. After compilation, the details of your reports build your credit score. If you consistently make timely payments, you can expect your score to improve significantly.
Late payments on your loan reduce your credibility and show your inability to be in charge of a credit account. However, you can get payday loans with no credit check.
How To Handle Credit Builder loans
1- Look for a Credit Builder Loan That Suits You:
Before applying for a credit builder loan, examine all available options and pick the one with payment terms that match your budget. The inability to afford your monthly payments raises your likelihood of late or failed payments and ultimately negatively impacts your credit score.
Select a loan amount you can afford and a repayment term no longer than two years. Make sure the loan also delivers reports to the credit bureaus.
2- Repay on Time:
Your credit history will reflect favorable data on your financial lifestyle if you follow the agreed repayment schedule. Being up to a month late on payment negatively affects your score and reduces your chances of getting loans with fair interest rates.
3- Keep an eye on Your Credit Score:
You can use financial apps to monitor your score from time to time. They refresh your score on a weekly basis and allow you to observe your progress.
4- Make a Budget on How To Spend Your Loan When You Get It:
After approval and receiving your funds, you will have full access to it. You can let it serve as an emergency fund to keep you on your feet if you are faced with urgent needs.
Planning a budget will also help ensure you have enough money to make your payments on time. You wouldn’t want setbacks immediately after building your history.
Where To Get a Credit Builder Loan
- Community Banks and Credit Unions:
Credit builder loans are less advertised than regular loans and, as such, are more challenging to find. Community banks and credit unions usually offer credit builder loans, and some might be within your locality. You can start your search on the internet and go from there.
Before your loan request can be approved at a credit union, some qualifications need to be met. You might have to work at certain organizations, live in their county, or be a part of a congregation. Reach out to them and confirm the details.
Community Development Financial Institutions (CDFI) are another viable option if the above doesn’t work. They have programs in place to assist low-income neighborhoods. Search online or ask around. Over 1,000 institutions like this are in the US.
- Online Lenders:
There are a handful of reputable online lenders out there willing to provide consumers with credit builder loans. Just be sure they are licensed and have positive reviews from customers. Also, compare their charges and interest rates, as they vary from one lender to the next.
- Lending Circles:
You should also consider building your credit score via lending circles. Many small organizations operate lending circles in which you could find one to participate in.
The circles are usually formed by at least ten individuals who are all comfortable with putting down a certain amount of cash monthly. After the funds are collated, a single member gets to loan it, and this goes to the next person the following month and continues until every member has had their own share.
As a member, you will get loans without additional interest and have your reports delivered to credit bureaus. However, loans are not always available.
With a good credit score, you can easily get a loan to sort essential needs whenever you are cash down. You will be safe from predatory lenders and avoid high-interest loans. Sites like MoneyZap will connect you with lenders who offer short- and long-term loans at competitive rates and flexible repayment terms.