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Credit Builder Loan – An Easy and Simple Way to Build or Repair CreditNovember 20, 2018
Time and again on our blog we have extolled the virtues of a good credit score. Without respectable credit, you may have difficulty getting a mortgage, a car loan, or even a job. Having said that, there are still many people out there who have a poor credit score, or perhaps no credit at all. Does this mean that all is lost for such individuals? Not necessarily. Through a tool called the credit builder loan, you can build - and even restore - your credit.
Credit builder loans are loans offered by smaller financial institutions such as credit unions and community banks. These help people with poor or no credit establish a good score. Financial institutions have their own vested interest in doing this. After all, if you become a good customer, it is quite likely that they will be able to make money from you in the future.
Nevertheless, these organizations are wary of taking up undue risk; hence, they impose limitations on the loans that they offer. While some institutions require the borrower to become a member for a certain period of time, others put forward stipulations such as a steady job or no recent checking overdrafts. The loans themselves may be limited to small amounts, such as $1,000 or $1,500, and have interest rates as high as 19.99%. The reason for this is that the purpose of such loans is less to provide financial help; it's mostly to help people build credit.
There are three main types of credit builder loans. In case of a loan secured by the loan funds, the union doesn’t release the borrowed money. Instead, it is kept in a savings account till the borrower makes the final payment. The advantage, in this case, is that the borrower does not need to provide any security up front, and ends up with a lump sum that can be used as desired.
A standard secured loan means that the borrower must already have money in a savings account or a certificate of deposit. This acts as security. The funds are frozen and released incrementally as the loan is paid down.
Finally, unsecured credit builder loans provide the borrower with money up front. If the borrower pays off the loan as per the agreement, his entire interest gets refunded. However, such loans are not easy to obtain, and there are many people who cannot afford them.
As for the effect of these loans on credit scores, a person with no credit can obtain a credit file after six months of taking the loan. And if they make payments on time, their score can shoot up from 0 to 600–700 over the life of the loan. Even a person with poor credit can see remarkable improvements in their score. However, there is a catch. Even if they make timely payments on this loan, the effect on their credit may be skewed if they are delinquent on other accounts.
Nevertheless, even if the result is a 20- to 25-point improvement in score, this option may be worth a shot as it can upgrade your credit quality from poor to fair, or from fair to good. For best results, just make sure that you keep the following points in mind.
- Ensure you are prepared to take out a credit builder loan. If you don’t have a steady stream of income or if you have trouble paying your bills, missed or late payments on this loan could lower your score instead of improving it.
- Explore your options and take the loan that best suits your needs. Credit builder loans come in all shapes and sizes and are also available for certain groups of people such as domestic violence survivors, people with disabilities, refugees, or young people.
- Before signing up for the loan, read all terms and conditions carefully, such as collateral requirements, interest rates, payment amounts and dates, and abide by them.
- Finally, don’t rush to pay back your loan. Credit establishment does not take place instantly, and you need to be patient and diligent during the entire process.
Once you have succeeded in building a good credit score, you will find that a new world has opened up for you. Not only will you be able to obtain easy approval for loans, but you’ll also qualify for them at lower interest rates. At our organization, we offer individuals with good credit the opportunity to obtain $50,000 - $250,000 of unsecured funds at 0%. This amount is available for a period of 6, 12 or 18 months and can be used for any purpose – no questions asked. So, if you know someone who needs, and is eligible for this kind of loan, call us at (800) 996-0270, and we will assist them right away!