What is a Credit Builder Loan? And is it Right For You?
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Are you wondering, “what is a credit builder loan?” In this article, I go over everything about it and how you can get started getting one.
Figuring out how you can build your credit is a mystery for many consumers. Indeed, it’s a question many ask when they don’t know how credit works. Luckily, there are different ways to build credit despite having a low credit score, or even no credit score. One of the excellent ways to improve a credit score is by getting a loan.
The Mechanics of Credit Builder Loans
When I was 18, like millions of consumers, I had no credit. I could not get a credit card without a credit score, and I didn’t know anything about secured credit cards. A friend of mine suggested I could improve my credit score by getting a loan from one of those places with neon lights, as they report the payment history to the credit bureau. And once the loan gets paid, I would have a credit score high enough to get a credit card.
So that’s what I did. I went to the store with the neon lights and promptly got a loan for $1,000. It was a signature loan, and I had to repay $101.97 a month for 12 months. Easy, I thought! But, I failed to understand that this loan came with a 39% APR! Instead, I saw it as paying $223.64 in interest. At the time, I didn’t need a loan. But, to me, it was the cost to obtain a credit rating.
Credit builder loans fill the gap without risk nor the predatory 39% interest rate. If you haven’t heard of such a loan, you are not the only one.
Let’s dig in.
Credit score
Consumers who want to get a credit card, car loan, or mortgage will almost always start with checking the borrowers’ credit score.
The credit score influences whether the lender will approve your loan and the interest rate you are needed to pay. Indeed, it’s challenging to get credit cards or loans with no credit or a thin credit report. But, with a credit builder loan, it’s possible! It’s an ideal solution that can establish good credit by reporting on-time payments.
