If you’re looking to boost your credit, there are many routes you can take. From opening joint accounts to setting up automatic payments so that you pay your credit cards off on time, the list goes on and on.
However, we often get asked about credit-builder loans and whether or not they can be advantageous. Today, we’re going to take a deep dive into the world of credit-builder loans to help you determine if they’re right for your needs.
Should I Get A Credit-Builder Loan?
If you have never used a credit card before or you have a poor credit history, the prospect of having a good credit score in the near future could feel discouraging. Getting rid of derogatory marks on your credit report or adding some meat to your thin credit file (less than 5 open accounts) could seem nearly impossible.
For this reason, credit-builder loans exist. These incredibly useful tools can help those who are struggling with building their credit. Here’s a bit more about how they work:
- Credit builder loans typically come in small amounts, anywhere from a few hundred dollars to a few thousand dollars.
- You can think of a credit-builder loan as a reverse version of a traditional loan. Rather than the lender giving you all of the funds upfront and paying the money you owe them back later, you have to make all of the monthly payments before you receive the loan disbursement. Essentially, you have to pay off the loan before you get it.
- Because of this, these credit-builder loans are a very low risk for lenders. People with thin credit histories or history of poor credit can often qualify for these loans as long as they have enough income to make the monthly payments.
- As you continue to pay off your credit-builder loan, your lender will report your credit history to the major credit bureaus. In doing so, they help you to build your credit report and boost your score.
Final Thoughts – Is A Credit-Builder Loan The Right Choice For Your Needs?
If you already have decent credit and you have access to credit cards or loans with low interest rates, getting a credit-builder loan may not be in your best interest. These loans are meant for those who are struggling with their credit score or have no credit at all.
Of course, beyond credit-builder loans, you might consider building your credit with authorized user tradelines.
If you’re looking to get tradelines that could boost your credit score, you will need to make sure that you manage all of your accounts responsibly and that your utilization ratios are low. When you become an authorized user on an account with a good credit history, you can improve your own credit.
Here at Boost Credit 101, we specialize in helping people like you raise their credit scores with high-quality tradelines. Make sure to reach out to us with any further questions.