Do you have bad credit? Or maybe you’ve just started to build credit. One of the best ways to start is to use a credit builder loan. Paying off a small loan over time proves that you can responsibly manage your money.
The bank or credit union that issues you a credit builder loan reports the payments you make to one or more of the three major credit reporting bureaus. This helps raise your score over time and opens more opportunities for you.
We’ll take a look at how you can get a credit builder loan with Credit Builder Plus from MoneyLion. We’ll also go over how to use a credit builder loan to increase your credit score in just a few steps.
What is a Credit Builder Loan?
A credit builder loan is a small, low-interest loan that can help you boost your credit score. Credit builder loans have annual interest rates and you make payments on them over time. However, credit builder loans usually have limitations on the amount of money that you can borrow. These loans are often unsecured, which means they don’t require you to put up collateral. In other words, if you don’t repay your credit builder loan, your bank can’t take your house or car. As a result, you may not be able to get a large credit builder loan from most lenders.
Whether you take out $50 or $5,000, what matters is that you make your payments on time. If you do, your credit score will go up. The opposite is also true. Missing payments means your score will go down. This makes it especially important to know when your payments are due and to make sure you don’t borrow more than you can afford to pay back.
Why is your credit score important, anyway? A solid credit history tells banks and lenders that you probably make your payments on time and that you don’t borrow more money than you can afford to pay back. On the other hand, a low credit score tells banks that you might miss payments or borrow too much. Banks and online lenders give the best rates to borrowers who have high credit scores. A high credit score can also help you rent an apartment, go back to school or even get a better job.
How Does a Credit Builder Loan Work?
There are three major credit reporting bureaus that keep a history of all the ways you use credit: Experian, Equifax and TransUnion. These credit bureaus issue credit reports, which allow you to view your credit activity. Your credit score comes from the items on your credit report. When you use credit, take out loans or make payments, credit reporting bureaus keep track of your activity. This activity can lower or raise your score. For example, paying off your credit card on time will raise your score, while missing a student loan payment will lower it.
Payment history makes up a whopping 35% of your FICO credit score. This means that the best way to raise your score is by making regular, on-time payments on credit cards and loans.
When you take out a credit builder loan, the bank or lender you borrow from agrees to report all of your payments to the bureaus. In exchange, you pay interest on your loan and make your payments on schedule. Over time, you’ll see your score rise.
When you shop for a credit builder loan, look for a bank or lender that offers a low interest rate. You’ll also want to make sure that your loan provider doesn’t have a minimum credit score requirement to qualify for a loan. The best credit builder loan providers offer you fast service and deposit the money in your account quickly. They also offer you a way to monitor your credit score — this allows you to track your progress and make sure that you’re staying on the right path.
Do I Need a Good Credit Score for a Credit Builder Loan?
No! The point of a credit builder loan is to improve or build credit. Though many banks and online lenders check your credit score before issuing a personal loan, most have more relaxed credit score requirements for credit builder loans. The trade-off to this is that you may only be able to take out a small loan amount. However, even borrowing a small amount of money will help you make your payments on time.
This doesn’t mean that there are no financial requirements to get a credit builder loan. Because credit builder loans don’t have collateral, the bank or lender needs to be very sure that you can pay back your loan.
The bank may require you to have a certain amount of money in savings before you can get a loan. You may also have to prove that you have steady, reliable income before the bank issues your loan. Be prepared with a copy of your bank statement and most recent pay stub before you apply for a loan. If you’re self-employed, you may have to verify your income using another method. For example, you may need to provide a copy of last year’s tax return.
When you choose a credit builder loan provider, carefully consider the financial requirements. Look for a lender that doesn’t factor your credit score when issuing loans. Ask about your lender’s other financial requirements and make sure you have whatever documentation you need on hand.
Benefits of a Getting a Credit Builder Loan
Credit builder loans are a great way to work toward a better credit score. Here are some of the many benefits.
No Credit Requirements
You might have already been rejected for a loan due to a low credit score. Banks and lenders who provide credit builder loans know that people who need them don’t have the best scores. But there are lots of credit builder loan providers who don’t take your score into account when they decide whether to issue you a loan.
Almost Instant Usage
Some lenders only offer credit builder loans until you’ve made payments on a loan amount for a year and actually raised your credit score. Instead of being able to use your credit builder loan immediately, most lending institutions force you to wait. MoneyLion quickly offers a credit builder loan to help you build a healthier credit score, along with 0% APR Instacash advances in seconds.
A Proven Track Record of On-Time Payments
Credit builder loans aren’t the only way you can raise your credit score. Paying off debt, avoiding opening new lines of credit and even just waiting for the ages of your existing accounts to rise will all help raise your score. However, when you use a credit builder loan, people who view your credit report will see a history of on-time, consistent payments. This can improve your credibility with everyone from landlords to mortgage lenders.
High Success Rates
On-time payments make up about 35% of your FICO credit score. On-time payments are one of the most important factors in score calculation. Credit builder loans allow you to significantly increase your score in a very short amount of time. For example, about 70% of MoneyLion users who take out a credit builder loan have seen their scores increase.
Afraid of taking out too large of a loan and falling behind on payments? Credit builder loans offer a more manageable way to raise your credit score thanks to loan limits. You can get a credit builder loan for as little as $500. Because the size of the loan doesn’t influence how your credit score changes, a small monthly payment for a short amount of time can raise your score.
How to Get a Credit Builder Loan from MoneyLion
You can begin working toward a better score with MoneyLion’s three simple steps.
Become a MoneyLion member
First, you’ll first need to be a MoneyLion Credit Builder Plus member in order to get a credit builder loan through MoneyLion. Good credit is not required! You can join from the comfort of your office or on your smartphone screen.
Download the MoneyLion app from the Google Play or Apple App store. Create an account and apply to be a MoneyLion member using the in-app instructions. You’ll need to provide a little personal information before you get an approval and you’ll also need to upload a valid form of photo identification.
One of the benefits of getting your loan through MoneyLion is that you can take advantage of instant approvals and funding. As soon as you become a MoneyLion Credit Builder Plus member, you’ll be instantly approved for a $500 5.99% APR loan and 0% APR Instacash cash advances.
Pay Your Monthly Installments
After you’ve gotten your credit builder loan, it’s time to improve your score by paying back the loan. Create a plan to pay back your monthly installments and make sure that you always make your payments on time. You can also schedule automatic payments from your account through the MoneyLion app. Many borrowers schedule their payments on payday to make sure they’ll never overdraw on their account.
Building Your Credit For a Better Future
Credit builder loans offer you a simple and convenient way to prove to lenders that you’re responsible — because a great credit score paves the way for your future and helps you save thousands in interest.
If you don’t know your credit score or you want to improve it with a credit builder loan, create an account with MoneyLion. Visit MoneyLion online or download the MoneyLion app to get started.