Finding the right methods to help increase your credit can be stressful when you don’t know what to do. Here is how to get a credit builder loan that can help you get started on the right path.
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What is a credit builder loan?
A credit builder loan is a way for you to work to help better your credit score when it is low. Depending on the type of credit building loan you get, there may be a subscription plan that includes a monthly membership fee or interest.
How does a credit builder loan work?
Typically, once you are approved, you select the amount for the loan and it is set aside in a bank account. Your payment history will be reported to the three major credit bureaus. If you make the installment payments on time, your credit score could increase. At the end of the loan plan, you get the sum of the loan transferred to you.
MoneyLion offers a CreditBuilder Plus program where Credit Builder Plus members can get access to a Credit Builder loan which is a little different in that we allow approved applicants to have access to a portion of the loan funds immediately. A CreditBuilder Plus membership also offers lots of perks in addition to a loan, including:
- Credit Score Mo.
- Personalized credit-building insights and tips sent right to your inbox
- Cash advances of up to $300 per pay period to help cover everyday expenses
All this for only $19.99 a month membership fee. And more than half of MoneyLion’s members have raised their scores by 42+ points within 60 days.1
4 steps to help get a credit builder loan
Here are some of the steps you can take when choosing a credit builder loan.
Step 1: Review your options
You’ll want to find the best credit builder loan for you.
Two things you should check are the interest rates and monthly subscription prices. Make sure your payments will be reported to the credit bureaus and whether there are additional features that might interest you.
Step 2: Applying
Applying for a credit builder loan is similar to applying for other types of loans, including proof of income, a government issued ID, proof of a residential address and other information.
During the application process, the company that offers the credit builder loan will typically do a soft credit check that won’t affect your credit score.
Step 3: Choosing the amount
It is important to choose an amount for the loan that you know you can afford to pay off monthly over a year. The point is to try to build your credit with on-time payments. If you fail to do that, you could hurt your credit score rather than help it.
Step 4: Make your payments
Once you are approved, the next step is to make those payments. This might feel like the hard part but with proper budgeting and saving, you should be able to do it. You will be told the amount of each scheduled payment and when to submit it.
What to consider when getting a credit builder loan
Terms and conditions
Make sure you understand all conditions connected with your loan, from penalties for late payments and prepayments to fees.
While going through this process, you could also look for ways to control your spending and improve your overall finances. You might be surprised how quickly you can build savings and cut spending when you understand good financial practices.
Is a credit builder loan a good idea?
A credit builder loan could help you improve your credit score by making on time payments while learning budgeting methods.
Do credit builder loans have interest?
Yes, most do; you should expect to pay interest on your loan.
Can you pay off credit builder loans early?
Yes, you typically can. The purpose of the credit builder loan is to add positive payment history to your credit report. By paying it off early, you will decrease the number of payments and perhaps lessen the effect of the loan on building your credit.