A credit-builder loan is a type of mortgage that allows you to build your credit score over time. The big difference between this form of loan and others is that it doesn’t require a credit score. So you’ll be able to build or improve your score.
This is a form of secured loan. These types of loans require you to make monthly payments, which help build your credit history and improve it over time.
The purpose of a credit-builder loan is to help you build your credit history by paying off smaller amounts of debt while building up money to pay off larger debts. If you’re looking for a short-term fix, this may be right for you. Beem find the best personal loan offers for you. Compare different options and see what works for you as per your requirements.
A credit-builder loan equips you with the ability to pay off all of your outstanding loans on time. These types of loans are especially beneficial for those without any prior credit history. If you are a credit newbie, this is the best way to start.
How Does a Credit-Builder Loan Work?
A credit-builder loan is a small loan that you make to build your credit. You’ll be able to borrow a certain amount and pay back the full amount over a certain period of time. People with no experience with credit widely chose these loans, also known as ‘Fresh Starter Loans’.
They’re typically provided by credit unions, online lenders, community banks, and other similar small-scale financial institutions. These institutions report back the information related to your monthly payments to the credit bureaus, thereby helping you build your credit score.
The moment your loan gets approved, the funds will be deposited in a secure interest-earning bank account. A time period is set and you continue paying the installments. Until you finish repaying in full, the funds cannot be accessed, helping you build your credit score and making way for guaranteed savings. All you have to do is keep up with the payments.
Should I get a credit-builder loan?
Credit-builder loans are a good way to establish or build your credit. They’re not based on your credit score. They can be used by people with bad credit who need money quickly and can’t wait for their application to be reviewed. However, you should keep in mind that not all lenders offer these types of loans. Also, the terms may vary from lender to lender.
Credit-builder loans are not ideal for anyone looking for long-term debt relief because they generally only offer one payment per month (or more often if required) rather than an installment plan. Installment plans allow payments over time, say monthly or even biweekly.
Other ways to build your credit
A credit-builder loan is a great way to build your credit score and pay off debt faster. With the right strategy, you’ll be able to save money on interest and get back on track with your financial goals.
If you already have a credit history but feel like there are still gaps left in terms of what lenders will give you based on their assessment of risk levels, consider taking out one or more short-term loans as a first step towards rebuilding your score. Then you can move onto something longer term such as an auto loan with lower rates than usual because they know it will boost them up higher! Use Beem to get personalized rates and explore loans ranging from $500 to $100,000.
You can also opt for unsecured loans from verified lenders, but they do not help you build a credit score.
