No matter the personal loan amount, going into debt can always feel like a heavy hit to your savings account. This is especially true when the monthly payments start stacking up. However, by looking into credit builder loans, you can take advantage of turning a small amount of debt into a stronger credit history.
What Is a Credit Builder Loan?
A credit builder loan allows you to improve your credit score and payment history by taking on a small amount of debt. By consistently making your credit loan payments either on time or even early, you establish a better credit report history. Here are some key takeaways:
- A credit builder loan can raise your credit score by several points in just a few months.
- The Consumer Financial Protection Bureau claims borrowers without debt saw many benefits to taking advantage of a credit builder loan.
- This type of loan is different from a traditional loan as it holds the amount of money you borrowed in a bank account while you make payments. This allows you to improve your credit and add to your savings at the same time.
- Most credit building loans are for small amounts typically ranging from $300 to $1,000.
- These loans are usually given terms between six months to 24 months to pay them back.
- People with low to poor credit scores can benefit from credit building loans as payment history is a large part of what determines your credit score.
- Making on-time payments to repay your loan will improve your credit score. These payments are reported to one of the three major credit bureaus — Experian, TransUnion or Equifax.
How Many Points Will a Credit Builder Loan Raise Your Credit Score?
When you find the right credit builder loan provider for you, the loan you select has the potential to raise your credit score an estimated 60 points in the first couple of months. If you don’t have existing debt, your credit score could go up even higher than that according to the Consumer Financial Protection Bureau.
Different Ways To Build Your Credit
Outside of paying your credit card bills on time, many platforms can also help you raise your credit score such as MoneyLion or CreditStrong. For example, CreditStrong offers plans that can help you with your credit score. Here’s a look at the three different options:
- CS Max
This plan has no monthly payments and you can start building your revolving credit immediately with it. You also may see an instant boost in your score as it decreases utilization. You can also combine Revolv with the other two plans, Instal and CS Max, to improve your credit profile.
Instal does have a low fixed monthly payment to help you build installment credit. There are multiple plans you can consider to make sure you choose the one that best suits your needs. You can build your credit or opt to both build your credit and savings.
3. CS Max
CS Max is one of the largest credit builder accounts available. This may be the choice for many looking for an established credit building plan. You can build installment credit for your personal needs or your small business.
Final Take To GO
The bottom line is if you make on-time payments consistently to repay your credit builder loan, you will improve your credit score by as much as 60 points in the first few months. They are for a small amount and typically are paid back between set terms ranging from six months to 24 months. Since the only reason for the loan is a score boost, repayment terms are kept achievable. If you need to raise your credit score quickly, a credit builder loan could be a financially savvy move to make.
FAQHere are some answers to frequently asked questions about raising your credit score through a credit builder loan.
- Is a credit builder loan a good idea?
- A credit builder loan can be a good idea if you have poor credit. This type of loan allows you to take on a small amount of debt and demonstrate that you're a reliable borrower. In return, you can improve your credit score and payment history. If you are debt-free before you take the loan, your credit score could go up 60 points or more in the first few months.
- Can I get a loan to build my credit?
- Yes, you can get a credit builder loan which is where you take on a small amount of debt and make on time payments. By doing so you can improve your credit score.
- Is a credit builder loan a personal loan?
- The biggest difference between a credit builder loan and a personal loan is when you get the money. A credit builder loan holds the amount of money you borrowed in a bank account while you make payments. While you are adding to your savings, you are also improving your credit. A personal loan, on the other hand, will just give you the money.
- How much does a credit builder loan help?
- In many cases, a credit builder loan can raise your credit score by nearly 60 points in the first few months, especially if you are debt-free before borrowing.
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- Consumer Financial Protection Bureau. 2020. "Targeting credit builder loans."