Here at Credit Law Center we run into many clients that may have not established credit or they are in a position to where they are need to recover from bad credit. They need to establish open lines of credit to help improve their scores. Talk about being stuck between a rock and a hard place. How can you get credit if you’ve never had credit? How do you get credit if you’ve had troubles with it in the past. Sometimes the effort seems futile. But, hey….. it’s not. It may take a little more time. But one can get back to a good place with patience, time and maintaining good credit discipline. If you are unable to get approved for a personal installment loan, one great option is a Credit Builder Loan. Consumers seeking a credit building loan to rebuild or build a stronger credit profile usually have a larger goal in mind. Whether your goal is getting an unsecured credit card, buy a new car or even purchase a home a credit builder loan is a great place to start.
Credit Builder Loans
A Credit builder loan is particularly offered by credit unions and a few banks, they are typically offered in modest amounts, ranging from $500 to $1500. Many credit unions and banks have certain requirements you must meet before they approve the loan. For example, they may require you to be a member for X number of years, have been employed at the same job for six months, and reside at the same location for six months to a year.
Credit Unions or banks may offer a different type of credit building loans and can vary in interest rates. Here are a few examples of the different types:
- A loan secured by loan funds: This type of loan is when the lender puts the loan amount in a locked savings account and gives it to the borrower after the final payment has been received. This type of credit building loan is safe and secure for both the lender and the borrower, and the major advantage is the borrower doesn’t need to come up with a lump sum payment to start building credit.
- Secured Loan: This is when a consumer gives a lump sum amount of money to the lender using it as collateral for a loan. The lender typically puts the lump sum in a secured savings account or a certificate of deposit. The collateral is frozen and the funds are released incrementally as the loan is paid down. The interest rates are typically lower on a secured loan, but the major disadvantage is coming up with a large amount to use as collateral.
Online Lenders is another great place to start if you can’t find what you need at your local Credit Union or Bank. There are plenty to choose from if you simply Google. Most of these Credit Builder lenders use a secured version of loaning. So, you don’t receive any money upfront. These institutions will deposit a sum into a savings type of account that you will be unable to gain access to until the terms of your loan are completed without re-payment blemishes. Once the loan is paid, then the consumer can access the funds, and (depending on the institution) may even receive some of the interest paid in throughout the life of the loan. Be sure to shop for fees, APR’s, and if you can afford the monthly payments.
If you are starting fresh and do not have credit a crediting building loan will take time to build on your credit profile. Once the loan starts reporting to the credit bureaus it may take up to six months before you start seeing an increase in your FICO Score. FICO needs enough information on your credit file to determine your creditworthiness. But that’s ok. Most Credit Builder loans are built to pay back from 6 – 12 months anyway. It does take time. Making your payments on time and in full will help build a strong credit profile.
It is extremely important that you remain current and on time with these loans. These loans will be reported to all 3 major bureaus. If you are re-building your credit, you will also want to make sure everything in your report is reporting accurate and is verifiable. If you haven’t already, I suggest subscribing to a credit monitoring service to comb over your report and look for inaccuracies. If there appears to be, give us a call to see how we may be able to help. Even a small increase in points can help you go from poor to fair, or fair to good. Credit Builder Loans can help move from a risky borrower to a less risky tier.
Bottom line is these are absolutely worth looking into if needing to establish credit or needing to re-build credit.
