Having a good credit score is critical in the age we live in. Having a low score—or no credit history—can hold you back in life.
The good news is that you don’t have to live with a low credit score forever. You can use a credit builder loan to turn things around. These loans are easy to obtain and simple to understand, plus the monthly payments you make can help improve your credit score.
What Is a Credit Builder Loan?
Banks, credit unions, and other private lenders offer a credit builder loan, a type of personal loan, to help you improve your credit score. The way they work is simple. You borrow a relatively small amount and then repay it over a 12-month term.
Credit builder loans help to improve your credit score—but only as long as you make payments on time. You will automatically report the payments you make to each of the three credit reporting bureaus (Experian, Equifax, TransUnion).
The amount you can borrow with a credit builder loan is usually small, typically $1,000 or less. It isn’t the amount that matters, but the timely repayment of the loan that helps to improve your credit score.
If the lender approves your credit builder loan, they will not give you the borrowed money immediately. We will place the money in a savings account, and you won’t have access to it until you fully repay the loan.
This is the reason why lenders often approve these loans when borrowers have poor or no credit histories. Keeping the money in a special account eliminates the risk for them that you’ll default on the loan. Because of this, qualifying for one of these loans is usually very easy.
How Are Credit Builder Loans Beneficial?
In addition to helping you improve your credit score, credit builder loans can also be used to establish a credit history if you currently don’t have one. It’s never too early to start working on building your credit!
We will place the money in a savings account, and you won’t have access to it until you fully repay the loan. A credit builder loan helps save money by placing borrowed funds in a special savings account, making them inaccessible initially.
How Do You Get a Credit Builder Loan?
If your lender offers a credit builder loan, you’ll have to show proof of income to qualify. Pay stubs or tax returns are usually sufficient. When you apply, you’ll need to include information about your employer, your current debts, and your current expenses. This is necessary to ensure you can make the monthly payments.
Lenders skip credit checks for these loans since they’re meant to build credit, so your score isn’t crucial for approval. Instead of checking your credit, however, your lender may review your banking history instead.
How to Build Credit Fast
Using personal loans to build credit is just one way to improve your score. But there are some other ways you can quickly boost your score.
Dispute Credit Report Errors
It’s important to periodically review your credit reports to make sure the information is correct. You can obtain free copies of your credit reports annually from each of the three credit reporting bureaus.
If you find an error on one of your reports, be sure to dispute it with the reporting bureau. The credit bureaus make it very easy to do this. They have online dispute forms that you can fill out and submit.
Ask for Higher Credit Limits
Several factors contribute to your credit score. One of those is the amount of your available credit that you’re currently using, which is called the credit utilization ratio. With credit cards, you don’t want to use more than 30% of your available credit—less is better.
If you’re currently using more than 30% of your available credit, you can lower it by paying off some of the balance. If this isn’t possible, you may be able to accomplish the same thing by contacting your credit card company and asking for a higher credit limit.
There’s no guarantee that they’ll agree, of course. If they do, the credit limit increase will instantly lower the percentage of credit that you’re currently using, which will help your credit score.
Become an Authorized User
Credit piggybacking, as it is called, is another strategy to lower your available credit and improve your credit score. The way it works is simple. You find a friend or family member who has a credit card with a high credit limit and a good payment history. That person then adds you as an authorized user.
In addition to benefiting from the increase in available credit, you also benefit from the card holder’s good payment history. You don’t even have to use the credit card—or have access to it—for this method to benefit your credit.
TEG Federal Credit Union (TEGFCU) Credit Builder Loans
Your credit score matters. If you’re ready to either establish or build your credit, TEGFCU offers a Fresh Start credit builder loan with a 12-month term and a competitive interest rate. You can borrow between $500 and $1,000, and if you make on-time payments for at least six months, you’ll also qualify for a credit card with a $1000 limit.
To qualify for a Fresh Start loan, you must be a current TEGFCU member in good standing for at least six months plus have a steady income. TEGFCU must also be your primary financial institution, or your intended one.
Click on the following link to learn more about our Fresh Start loans and to see how easy it is to get started!
