It is not a myth, but you can build credit from ground zero. You can get a good credit score, become an authorized user on another individual’s credit card, and avail auto-loans with a co-signer. All of this is possible. An option that is not known to many is a credit builder loan, which shows you how to build credit fast.
By definition, credit builder loans are opted for simply building credit and improve your rating. They are granted by unions or other financial institutions such as banks. Some nonprofit organizations also provide credit builder loans, but that is rare. Some even provide student loans forgiveness for teachers.
A credit builder loan is a unique form of loan and you do not gain access to money instantly. They simply boost your credit rating and provided that you make timely payment into your savings account.
Why Opt For A Credit Builder Loan?
Credit builder loans are useful if you relate to the following situations:
- Not having an appropriate credit history
There are many investments where credit history is mandatory. If you want to make investments in the basic livings, obtain a savings account.
- You do not use any credit cards
Having multiple numbers of credit cards can improve your credit but holding so many cards is a burden that you do not want on your shoulders. We all have grown up hearing horror stories of owning credit cards and the debt.
- You wish to achieve a financial milestone
It can be any goal that you have in mind. Provide for someone’s education, buying your favorite car, home, or anything. A good credit rating means you can have suitable interest rates.
- You want to start over your financial planning
If you just bounced off a financial crisis or newly settling into the United States, you can avail a credit builder loan easily. Many people also do so for attaining financial security, especially in social situations where they are faced with domestic violence, etc.
How Does It Work?
Credit builder loans are not in millions or even hundreds of thousands. They are small amounts, ranging from $500 to $1,500. This is because they are meant to be reasonable when paying backs. With interest incurring, they are not supposed to become a burden and hurt your financial stability.
Over time, you make the loan payments on the amount you secured. Here is a common case: you make monthly payments for a year or two. The financial body secures funds in a savings account that bears interest, and you are entitled to those funds once the amount owed by you is paid back to the last penny.
Different Types Of Credit Builder Loans
1. Pure credit builder loan
A bank processes funds and puts them into a savings account, whereas you make payments. This does not acquire you to pay money upfront, but more of a layaway system where you make payments over time.
2. Secured loan
You secure a loan with money existing in your savings account. The interest rate incurred would be low. This is a good way to establish some savings since you get no access to the money until the amount is paid back.
3. Unsecured loan
In this option, you get cash upfront to use. You end up paying back the amount at a pre-decided rate. However, the interest rates here would be a little higher. If you really need to have cash upfront, going for an unsecured loan is the ideal choice but you will still need to make payments later on.
Summing Up: The Best Credit Builder Loan In 2020
The best credit builder loan you can go for is with online lenders. There are online lenders widely available, and we recommend checking out the brochure of Self. It offers credit building loans which you can repay in little amounts: $25, $35, $48, and $150 monthly installments
The payment terms are from a year to two years. There is also no cost of signing up with Self.
The best part is that the Self is available in over 50 states of the United States. You can easily access their portal via the mobile app. Each time you make a repayment, you will see your credit score improving and your transaction reported with the financial bureaus of TransUnion, Equifax, and Experian.