Need Housing Help? Here are a few resources to help you cover your mortgage, rental assistance, or utilities. Find COVID-19 mortgage and housing assistance here.
Are you looking for more ways to improve your credit score? Building credit can be difficult for some, especially after financial difficulties like bankruptcy. Thankfully, there many ways to help this process along, with credit building loans being one of them. Credit building loans are nothing new, but they aren’t widely advertised since banks can’t profit from them. With these loans, however, you can kick start the credit building process. You don’t need excellent credit to be approved for these loans, so long as you can make repayments on top of your existing monthly expenses.
How Do Loans Help My Credit?Borrowing money and paying it back in a timely manner is reflected on your credit reports, reports made by financial institutions you interact with. This, in turn, makes you look reliable to future lenders. When your credit takes a hit, however, it can be difficult to finance larger purchases. Your credit score can impact everything from getting a job to buying a house, so it’s important to keep your credit in shape by paying things back on time. Defaulting and having bills end up in collections negatively effects your credit, so it’s best to only borrow amounts that you can afford to make payments on.
Loans That Build CreditThere are different types of credit building loans available when it comes to building credit. These are a few of the more common options:
1. Passbook or CD LoansA CD (certificate of deposit) is similar to a savings account in that your money is insured by the bank, making it a relatively risk free investment. Your bank may allow a CD to be used as loan collateral, though you may only be allowed to borrow up to a certain percentage of the money in your CD account. There are some banks that will allow 100% of your CD or savings to be used for this purpose.
2. Credit Builder LoanThis type of loan is great regardless of the type of credit you have because you will be approved. The reason that you will be approved is because you must pay all the money that you borrow into a designated savings account. You are not able to have any access to that money at all until you have paid the full amount of the loan.
3. Secured Installment LoansAn Installment Loan allows you to borrow as much as 98% of the balance of your savings deposit. It is the usual policy of most banks that the least amount of the money borrowed is $1,000.00. There are generally no costs or fees associated with this type of loan, and the borrower does not need to confirm their employment status or income. You are borrowing money against the money you have on deposit at the bank, and this allows you to continue earning interest on those funds. These types of loans offer lower interest rates than traditional loans or credit cards.
4. Credit-Builder LoansThese loans are a good tool for someone with bad credit to have the opportunity to build their credit from the ground up. The main reason that loans are necessary for credit building is because the progress and timing of payments are constantly being reported to the credit bureau which establishes a credit rating for the borrower.
ConclusionCredit building loans are a great tool for people to use when they need to rebuild their credit or if they do not have any credit history. Taking out a loan is a better option than credit cards because the interest is a lot less and the payments are fixed. When you are trying to rebuild credit using a credit card there is the temptation to use the room that you have on the card by racking the balance back up again. This is harmful because balances should be kept at 30% of the limit. If you are a person that is not disciplined with credit then you should avoid credit cards altogether. The first step is to contact a bank that you deal with or hold accounts at. Speak to someone about loans that improve credit scores and rebuilding credit. You should be able to get access to a loan that can help you set up a new and positive credit history.
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