Consumers shouldn’t be afraid of a personal loan ruining their credit. When you have poor credit, a loan may be exactly what you need to get back on track. Like all ways to build credit, this requires patience and an understanding of scores. Using a loan to build credit won’t improve you by a hundred points overnight but is worth the trouble.

Credit Builder Loans

Credit builder loans are also known as installment loans. It is set up to help consumers with bad credit. An installment loan is also useful for consumers with little credit, as a way to start the foundation to building a history. Without a credit builder loan, you are less likely to get approved for better rates with credit cards or other types of lending. The obvious pro of a credit builder loan is that it doesn’t require good credit. To get a good idea of how interest plays a role in loans, look at a Personal Loan Emi Calculator to see where you rank. Bad credit means there will be a higher rate of interest on the loan. The higher the interest rate, the more you have to pay back in total. Bad credit can even lock you out of longer loan tenures that would make it easier on your finances.

The Specifics

In order to fully realize the potential of a credit builder loan, you have to realize that it takes a minimum of a six months to see positive results. The loan works by putting an amount of money you borrow into a locked savings account. It is held there while you make on time payments to the bank holding the loan. Once you finish paying off the loan, you get the money in the savings account back. In short, a credit builder loan is paying into your own money to show a positive credit history. Paying on time is important since the bank that offered the loan reports to all three credit bureaus.

Check Your Progress

Monitor the progress of your credit report to see how impactful an installment loan is. You will have to wait a couple of months to see the difference. By sticking to the plan, the loan will reshape your credit history so that it is more appealing to lenders. Home and small business loan interest rates will be more affordable with the help of a credit builder loan. It is one of the most affordable ways to build credit without a large down payment. Equifax, Transunion and Experian are supported with this type of loan.   

Wrap Up

There are many ways to build up credit in the short and long term. Getting a loan to improve credit is one of the proven long-term ways to get the job done. There are no clever tricks involved, and the only downside is the time it takes. But if you’ve got a few months to spare, there is no better way to improve credit.