A credit-builder loan is designed to help people who have little or no credit history build credit. A good score makes approval for credit cards and loans, at better rates, more likely.
Credit-builder loans do not require good credit for approval. They do require that you have enough income to make payments.
These loans can be a good choice for credit newbies but may not be effective for those with existing debt. A Consumer Financial Protection Bureau analysis of about 1,500 consumers, released in 2020, found that „participants without existing debt saw their credit scores increase by 60 points more than participants with existing debt.”
How does a credit builder loan work?
Credit-builder loans go by many names, such as „Fresh Start Loans” or „Starting Over Loans.” They’re not widely advertised and are generally offered by smaller financial institutions, such as credit unions and community banks. Read more