What are bad credit loans or a credit builder loan?
Bad credit loans, aka credit builder loans, help people with a bad credit score build up their credit score. This loan program kicks your credit building into high gear. It’s a way to create a good credit history and show the credit bureaus your creditworthiness. This loan explicitly shows that you’re responsible for making timely payments and exhibiting a continual pattern of good payment history. With this loan, your personal credit score builds quickly and efficiently while also adding funds to your savings account.
Money FCU designed the credit builder loan as a bad credit loan for those who need to establish credit or rebuild credit. It’s a secured personal loan that helps to build your credit score. With credit building loans, the lender puts the loan funds into your savings account and puts them on hold. Yes, it’s unconventional that the borrower does not receive any actual money to use. The loan amount is held in your savings account while you pay it off. The credit builder loan is a secured loan that uses the loan funds held within the bank account as collateral. Further, as you repay the loan, the corresponding funds become available in your account. It’s essentially a forced savings account while building good credit history.
Building credit without a credit card.
Are you looking for how to build credit without a credit card? Credit builder loans are your ticket to the freedom of repaired credit. The money for the loan stays in your savings account. So, you build up your savings account while you pay off the loan amount. You are simultaneously increasing your credit and the cash in your savings account. Using a credit card is a bad idea for building credit because you also incur debt. A credit building loan is an installment loan that forces you to add to your savings account as you pay back the loan. By doing it this way, you don’t incur additional debt but do show a balance of savings and good credit history.
Another reason to not attempt to build credit on a credit card is the high interest rate of credit cards. The average credit card interest rate as of July 2022 is 17.48% per businessinsider.com. In comparison, the fixed interest rate for Money FCU’s credit builder loan is only 2.25%*. That’s a vast difference, which also equals huge savings.
Finally, the last reason not to add debt to a credit card in an attempt to build credit is that there’s no set end date to the length of the loan term on a credit card. This means you have no scheduled end date on the loan term. Therefore, there is no guaranteed date for repayment of the loan debt. It is not advisable when you’re trying to build credit to have an open-ended repayment period. A credit builder loan has a set monthly payment so you can budget accordingly. You make monthly payments knowing exactly when your personal loan term ends, not to mention when you’ll be free of the debt.
*Rate shown includes 0.25% automatic payment discount.
What lenders will work with bad credit?
Credit unions often try to help people who have a low credit score or bad credit. Credit unions are a community financial establishment, which means that our members are the shareholders. Therefore, it may be easier for us to approve a member with poor credit than it would be for a bank. Money FCU can do this because credit unions do not need to worry about trustees or shareholders. We concentrate on giving to the community and helping the neighborhood. If you would like to learn more about the differences between a bank and a credit union, read our blogs, Advantages of Working with a Local Syracuse Credit Union Vs. a Bank and The History of Credit Unions: Why Are We Different?
Making your credit builder loan payment on time is crucial to improving your credit score. There are three major credit bureaus; Equifax, Experian, and TransUnion. All three credit bureaus report payment history on your credit report. Financial institutions will look at credit reports for consistent, timely payments when making a decision about granting you a loan. Sticking to your monthly payment shows your ability to handle debt and improves your creditworthiness. When you consider this, it makes it easy to understand why it’s imperative to pay on time. Plus, FICO generates your credit score using the reports from these top three credit bureaus.