Clik here to view.
What do you know about credit builder loans? It’s a different type of loan product that drastically lowers any risk because you can cancel at any time. If your circumstances change, you simply let the bank know and any funds you have built up are sent to you.
You choose the loan product. You might opt for a $1,000 loan that’s paid off in 12 months or an $18,000 that’s paid off in 10 years. The difference is that you make the low monthly payments and don’t get the money straight away. Instead, the funds are set aside in a locked FDIC-approved savings account. Once you make the final payment, that bank account is unlocked and the money becomes yours to transfer to a new bank or use it as you’d like.
Each payment that’s made is reported to the three major credit bureaus. The longer your loan, the better it is for you. Credit scores are based on:
- Timely payments (35% of your FICO score)
- The amount of debt you owe (30%)
- How long you’ve been with a company (15%)
- The types of debt you hold (10%)
- How often you apply for a new credit product (10%)
Length of credit history is one area where you shouldn’t always go for the shortest terms. If you have a 12-month credit builder loan, it won’t help the “length of history” aspect of the score as much as a 48-month loan would.
How Does This Type of Loan Work?
Start by applying for the credit builder loan. There’s no credit check. This prevents your credit score from decreasing as it won’t show up on your credit report. Once approved, the bank opens an account for you and places the money in that account. The account is locked.
Each month, you make your monthly payment. That payment is split between the fee the bank charges for the credit builder loan and the loan amount. Here’s an example of how it would work.
You take out a credit builder loan for $2,500 and make monthly payments of $60. Of that $60, $16 goes to the bank to cover the fees and $44 goes to the loan. As the money going toward your balance increases, the interest and fees decrease. After a year, you’ll have saved up $545 of that $2,500. By the end of the fourth year, you’ll have the entire $2,500 unlocked. All 48 payments have helped boost your credit score as long as you’ve made the payments on time. (These amounts will vary depending on the interest rate that’s assigned and length of the loan.)
That’s the key; you have to make the payments on time. If you can’t, it will be reported as a late payment. It is important to let the bank know if you cannot keep making the monthly payments. If you had to cancel after making 24 payments, you’d receive just over $1,100 with the total of the payments you’d made so far. The bank gives that amount to you.
Featured New to Credit
Petal 1 “No Annual Fee” Visa® Credit Card
Clik here to view.
Image may be NSFW.Clik here to view.
Image may be NSFW.Clik here to view.
Image may be NSFW.Clik here to view.
Image may be NSFW.Clik here to view.
Applying for this card will securely direct you to the issuer's website.
Top Features:
Cash flow technology may help applicants without credit history get approved.
Tips for Applying for a Credit Builder Loan
Make sure you qualify for the loan you desire. If you choose a credit builder product from Credit Strong , you must be 18 years of age. You have to have a valid ITIN or SSN, a checking account or debit/prepaid debit card, and a mobile phone or Google Voice account. You have to have an active email account. You also must have a physical address in the USA.
Not every U.S. resident will qualify for Credit Strong products. Residents of North Carolina cannot apply due to laws regarding military borrowers. Vermont does not allow any deposit secured lending products. Wisconsin has spousal consent laws in place that cannot be factored into online applications. Credit Strong is, however, the only credit building product approved in New York.
Gather the documents you need before you sign up. Have your ITIN or SSN handy. Jot down your debit card number or routing/account number if you’re using a checking account. Know your Google Voice or cellphone number. The application form will ask for this information.
As you enter information into the online form, double-check your answers before you submit your application. It’s unlikely your application will be denied, but the system will verify that the information you’ve given is correct. If it cannot verify your address is accurate, you face having your application denied. Once denied, you have to wait 90 days to reapply. It may be faster if you can provide the information that led to the denial.
Before you apply for a credit builder loan, make sure you know what the administrative fees are. With Credit Strong, there’s a small fee to set up the credit builder account with Austin Capital Bank. The fee isn’t much more than the cost of a subscription to a streaming service like Netflix or Disney Plus, so it’s not going to set you back.
Types of Credit Builder Loans Through Credit Strong
You’re ready to apply, so how do you know what’s the best credit builder loan? It comes down to how much you can afford. Allow yourself some room in case of unexpected bills. If your electricity bill is higher than budgeted due to a heatwave or cold snap, you wouldn’t be in a pinch for funds if you’ve planned for the unexpected.
Credit Strong has several credit builder products available. You choose the product that best fits your needs and budget from these options.
- Build and Save 1000 (Payment terms of 1 or 2 years for $1,000)
- Build and Save 2000 (Payment terms of 2 years for $2,000)
- Magnum 4500 (Payment terms of up to 10 years for $4,500)
- Magnum 9000 (Payment terms of up to 10 years for $9,000)
- Magnum 18000 (Payment terms of up to 10 years for $18,000)
- Subscribe 1000 (Payments terms of up to 10 years for $1,000)
- Subscribe 2500 (Payment terms of up to 10 years for $2,500)
With each of these products, you can check your FICO 8 score each month to watch the improvements. An increased credit score isn’t guaranteed, but as long as you are making payments on time, not taking out additional loan products, or filing multiple credit card or loan applications that do a hard pull of your credit, you should see the score improving within one or two months. The online dashboard also lets you check your balance and access important documents.
You may already have a credit monitoring service that provides a Vantage 3.0 score, so why would you want access to another free credit score? It’s estimated that 9 out of 10 lenders use FICO as the base score before approving or denying your credit card, auto loan, or other financial application. The range of scores differ slightly, so it’s ideal to know where you fall with both companies.
Vantage 3.0 uses this scale:
- 300 to 549 – Very poor
- 550 to 649 – Poor
- 650 to 699 – Fair
- 700 to 749 – Good
- 750 to 850 – Excellent
FICO scores depend on what type of lender is pulling your credit, but the general scale is as follows:
- 300 to 579 – Very poor
- 580 to 669 – Fair
- 670 to 739 – Good
- 740 to 799 – Very good
- 800 to 850 – Excellent
Credit Builder loans are an excellent product if you have a hard time qualifying for a credit card. There’s an added benefit of having money tucked away in an account that you cannot touch until your final payment. Sign up with Credit Strong, make monthly payments, and start watching your credit score climb.
The post What is a Credit Builder Loan? appeared first on LowCards.com.