Building credit can be frustrating, especially when you’re just starting out. You can’t get credit because you don’t have a credit history, but you can’t build your credit history because you don’t have credit!
Fortunately, there are ways to get out of this limbo, like getting help from credit repair companies in Atlanta like The Phenix Group who can walk you through finance basics like credit versus debt. Another alternative is to get a credit builder loan from Self, which is specifically designed to help people build credit and save money.
What Is a Credit Builder Loan?
A credit builder loan is a special type of loan that’s meant to aid beginners to build their credit history and to help people with bad credit (below 670) improve their scores. Unlike a traditional loan, you don’t actually get any money to start with.
Instead, when you’re approved for the loan, the lender will place the money in a savings account on your behalf. Then, you’ll pay monthly for loan bills, with each payment showing up on your credit report. As you pay them diligently, you improve your credit score.
How Self Credit Builder Works
Self credit builder loans start with a loan application to Self (previously known as Self Lender), an online lender that offers the said loans. Once you’re approved, the amount you borrow, ranging from around $500 to a little over $1,500, will be set aside in a secured savings account or certificate of deposit (CD) while you pay off the loan.
You’ll get monthly bills for the period of your loan term, typically between twelve and twenty-four months. You can choose how much you pay each month, from as low as $25 to as much as $150.
Every payment you make is reported to the credit bureaus (Experian, TransUnion, and Equifax), helping you build your credit history and raise your credit score. That said, late or missed payments will also be noted, which could actually damage your credit standing, which could easily turn into a worst-case scenario of having debt collectors like CCS Collections on your tail. So, it’s important to always pay the agreed-upon amount on time.
Once you’ve paid off the balance in full at the end of the loan term, you can access the money and do with it as you please. Keep in mind that loan payments include interest, so you’ll receive less than what you pay.
How Does Self Credit Builder Help With a Credit Score?
Payment history accounts for 35% of your credit score, and because Self reports all payments that you make to “pay off” your credit builder loan, it shows that you’re in good financial standing to do the same for any other loans or credit you may get in the future. This helps you raise your score.
Data shows that credit builder loans increase the likelihood of establishing a credit score by 24% for those who don’t have an existing loan. People with existing debt can even see up to a sixty-point increase in their score when they industriously pay their bills on time. Additionally, a person with a credit builder loan can see an average increase of $250 in their savings balance after the loan term.
It’s essential to note, though, that the positive effects of a Self credit builder loan can only be enjoyed if you’re financially responsible with your payments. If you can’t pay it off or you miss out on payments, including in relation to other existing debts or credit card balances, you’ll only end up hurting your credit score.
Is a Self Credit Builder Loan Worth It?
A Self credit builder loan is definitely worth it if you’re only starting to build your credit history or if you’re hoping to improve your credit score. When done right, it can help you access more financial tools, such as credit cards and loans. Having good credit also allows you to get approved for housing, finance vehicles, pay lower insurance premiums, put utilities in your name, and qualify for a mortgage, among other benefits.
Explore Your Credit Building Options With The Phenix Group
While a Self credit builder loan is a great option for building a solid credit history and raising a low credit score, there are many other options to get yourself in good financial status. It’s important to know what’s available and which path is best suited for your unique situation.
Using a credit repair company like The Phenix Group is an excellent way to learn about the best credit building routes. We can recommend a customized plan to get you where you want to be in your credit standing–and to stay there. Get valuable advice from The Phenix Group today!