Are you in search of the best loan that can help you build your credit? Then you are in the right place, as in this review we will give you the best credit builder loan as per research. There are a lot of loans out there that can help you build your credit, but we have searched and have compiled the best ones for you.
This type of loan is made for those who have little or no credit history to build credit. Getting a good credit score makes approval for credit cards and loans at better rates easier. These loans can help “credit invisible” appear on the credit screen and are an excellent option for credit beginners. Consumers who are already in debt are unlikely to benefit as much.
According to a Consumer Financial Protection Bureau study issued in 2020, the credit scores of participants who did not have current debt increased 60 points more than those who did have existing debt. Credit-builder loans are not subject to credit checks.
They do ask that you have adequate money to cover your bills. They are really not frequently promoted and are usually only available through smaller financial institutions like credit unions and local banks.
How Does a Credit Builder Loan Work?
If you’re accepted for the loan, the money will be held in a bank account until you pay it back. You won’t be able to access the money until you’ve paid off the loan in full, so you’ll be able to save and improve your credit at the same time.
This also serves as a safety zone for the lender, who is taking a chance on you because you have no credit history or a low credit score. At least one creditor receives information about your loan installments.
Your credit score is calculated using information from your credit reports, which are provided by the three major credit reporting organizations. As long as you pay on time, having your payments reported helps you develop credit.
Keeping up with your credit-builder loan payments is important because it shows you’re able to manage a credit account. The FICO and VantageScore credit scoring models pay the most attention to your payment history in your credit reports.
How to Manage a Credit Builder Loan
There are just 4 steps to managing your credit builder loan and they are the best ways you can make use of them anytime and anywhere. Check below for the steps.
Check and Select the Right Credit Builder Loan
Look for one that has a payment you can afford. Extending your budget increases your chances of missing a payment and hurting your credit score. We suggest taking out a small loan with a term of no more than 24 months. Choose a loan that sends payment information to all credit reporting agencies.
Make Your Payment On Time
If you repay the loan on time, you will improve your credit score. However, a payment that is more than 30 days late will appear on your reports and can negatively impact your credit score.
Your Credit Score Should Be Checked Regularly
To receive a free credit score, go to a personal finance website like NerdWallet. NerdWallet updates your score weekly; keep an eye on the overall history of your score rather than worrying over small changes.
With the Loan Proceeds, Decide What to do Plus Any Interest
You get the money and, most probably, an improved credit score at the end of the loan period. Use that money as an emergency reserve if at all possible. Even a few hundred dollars saved will protect you from unforeseen expenses that could result in debt, missed payments, or credit score harm.
Where to Find a Credit Builder Loan?
- CDFIs
- Credit unions or community banks
- Online lender
- Lending circles
Best Credit Builder Loans
The lender builder accounts that will be listed in this part of the article are the best ones among others. Below are the best lender builder accounts you can apply for a loan at.
- Credit Strong
- Self
- Chime
- MoneyLion
- Fig Loans
- DCU Credit Loans
- Metro Credit Loans
Credit-building loans come in a variety of sizes and shapes. They each have a different interest rate, a different minimum monthly payment, and payback lengths that change greatly.