What Are the Pros and Cons of a Credit Builder Loan?

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Interested in learning how a credit builder loan can help improve your credit score if you’ve lost your job or household income? If you are not yet familiar with credit builder loans, you’re not alone. Here’s a brief guide that the finance team at Coast Tradelines put together to help you understand why they’ve become a workable option for building or restoring credit quickly.

A credit builder loan can improve your credit score faster than a secured credit card. 

Individuals who need to upgrade their creditworthiness quickly have turned to credit builder loans to improve their scores. When time is of the essence — especially when you need to get back on your feet — you could build a positive payment history much faster with a credit builder loan than by using secured credit cards.

You do not need a high credit score or a long-term payment history.

First-time or damaged-credit borrowers applying for a traditional credit card or personal loan may be rejected if they are unable to show a history of making on-time payments. A credit builder loan, however, does not require a previously established payment history or a high credit score.

Designed for individuals with low credit scores or no prior borrowing history, a credit builder loan serves a dual purpose. While it works like a personal loan requiring monthly payments that build your score, it also acts as a general savings account. Each time you make an on-time payment, the proceeds are placed in an account at the institution issuing the loan. After paying off the loan’s balance in full, you get back the total of the combined payments you made minus the interest.

There are affordable options.

The first step is determining how much income you could dedicate toward a credit builder loan. Typical loan sizes range between $500 and $1,000 with a payment plan of up to 24 months. For example, a $500 loan with a 12-month term would require a monthly payment of about $44, which includes the principal and interest.

You could also choose the amount of your credit builder loan based on how much you can realistically afford to pay each month. The payment arrangements are based on how many years you want to put toward improving your credit score and your plans for the future. Overall, we don’t think you’ll find more affordable options than what the team at Coast Tradelines can offer.

Your on-time credit builder loan payments are reported to the major credit bureaus.

Every monthly payment made to pay down the balance on a credit builder loan is noted by the major consumer credit reporting bureaus. The on-time payment data becomes part of the scoring matrix used by lenders to determine your creditworthiness.

Your funds, however, are not available until after the loan is paid in full.

If your current budget can cover the payments required during the life of the loan, a Coast Tradelines plan can put you on the fast track to good or restored credit. The trade-off, however, is that you can’t access the funds in your account until after the loan is paid in full. You may need to make a large balloon payment to pay it off completely if you need the funds immediately.

It could require some patience to build a high credit score.

Sometimes, it could take a few years to build the type of high credit score you’re hoping for. If you once had excellent credit and fell behind on payments due to an unexpected turn in your finances, chances are that your credit score has fallen below the point where it’s useful any longer. You want to get it to where it’s rated as “good” again, but you may also have your sights set on a “high” or “excellent” credit rating. That’s not out of reach, but it could take a little longer to get there.

You may not find it easy to be approved for a large bank loan or qualify to rent an expensive apartment immediately after beginning your first payments on a credit builder loan. You may, of course, want to see your credit score go far beyond the “good” range as soon as possible, but your credit score may not be in your desired range before your loan term is up. A little time and patience, however, combined with steady on-time payments can help you reach your desired credit range.

Get a fresh start with Coast Tradelines — we’ll show you how.

The dedicated and expert financial team at Coast Tradelines will work with you to assess the best options to upgrade or rebuild your credit. Regardless of your history, the team can outline a path to a good or restored credit score that works for you.We are all living in unprecedented times, and many of us have been affected financially. When you begin falling behind on payments, it’s difficult to hang on to a stellar credit score. You can, however, rebuild your credit with Coast Tradelines as soon as you’re earning income again.