March 21, 2019
A credit builder loan is exactly what the name implies: a loan designed to help establish a better credit score. By properly managing and paying off the credit builder loan, your credit score will improve and allow you to get better interest rates and terms on many other types of financial products.
Features of a Credit Builder Loan
Most credit builder loans isolate the borrowed amount into a separate savings account where it can't be accessed until the loan is paid off. As you pay down the loan, your credit score will improve. When the final amount is paid off, you will gain access to the previously sealed funds.
It is important to remember that a credit builder loan is still a form of debt. As a result, it is not always advisable to take one if you are already paying off other debts such as from a credit card. While credit builder loans can still help someone improve their score, failing to make proper payments will still suffer the same penalties as any other form of debt.
How Credit Builder Loans Improve Your Credit Score
As mentioned, the money you borrow from a credit builder loan is not available until you finish paying off the debt. This prevents you from immediately returning the money and requires that it be paid off through normal means. Since credit builder loans are usually smaller amounts compared to other forms of debt, it is often easier and faster to pay one off compared to other loan types. As you make your payments, these activities are reported to credit bureaus, which in turn take the positive payments into account when calculating your credit score. Ideally, you will find a credit builder loan from a source with ties to multiple credit bureaus to ensure the change is accurately reflected.
How Credit Unions Help You Rebuild Your Credit Score
Credit unions like LUSO are capable of issuing credit builder loans and help you improve your credit score in other ways, as well. For instance, many credit unions offer credit counseling services that members can use to learn how to better manage their finances. This can allow you to get a better understanding of financial health and learn ways to manage credit that you might not have known about. Credit unions may also offer various online resources such as budgeting tools or apps, informational guides, and planners. Lastly, credit unions can also offer loan consolidation as a way to combine multiple debts into a single loan that is much easier to track and manage.
Finding Credit Builder Loans in Western Mass.
LUSO Federal Credit Union is a member-owned, not-for-profit financial cooperative that is dedicated to providing members quality financial services and products, including credit builder loans. We are a staple institution of Hampden County and take strides to help Members develop well-rounded financial health.
Feel free to contact our Ludlow or Wilbraham branch at 1-544-LUSO-FCU.