If your credit score is low and you want to increase it as quickly as possible, you might want to consider taking out a loan. Taking out a loan and paying it off on time can really help your credit. The higher your credit rating is, the easier it will be to get loans in the future. Your new and improved credit score will open up a whole world of financial opportunities. There are some loans that are better than others for improving credit, and you will need to know what they are.
What Are Credit-Builder Loans?
Credit-builder loans are kind of like secured credit cards, but you don’t need to put down any money as a deposit. You must repay the loan in full and on time before you get access to the funds. These loans are particularly ideal for people with bad credit, as you won’t have to risk damaging your rating at all. Many people in the UK are getting these loans because of how effective they can be at raising credit scores.
Secured or Unsecured?
You can categorize most loans as either secured or unsecured. A secured loan uses collateral, such as with a car or home loan. An unsecured loan doesn’t use collateral at all. Credit-builder loans are secured with the money itself. You won’t have access to the money until you pay the loan off, so you don’t need to risk any of your property.
There is a sort of middle option that will allow you to gain access to some of the funds from the loan, while the rest is untouchable until you have paid it off in full. This is still a secured loan, as your savings account would be acting as the collateral.
Unsecured credit-builder loans do exist, though they aren’t quite as common. One of the downsides to this type of loan is that you will most likely pay a higher interest rate. The good part is that you will be able to get instant access to all of the funds in the event of an emergency.
One of the best things about credit-builder loans is that you don’t have to put down any collateral or even have a bank account when signing up for one. This means that you won’t have to worry about losing your savings if you cannot pay back the loan.
Where to Find a Credit Builder Loan
You can get a credit-builder loan from most banks and credit unions, though there are other options to choose from. A lot of people in the UK are getting these loans from online lenders for a variety of reasons.
Online lenders tend to give borrowers better interest rates, so you can boost your credit without spending a lot of extra money. It is important to keep in mind that online lenders also tend to have lower standards for applicants than banks. It is not uncommon for people who get turned down for these loans by banks to go online.
There will be certain requirements that you will have to meet to get money now, just like any other kind. You will need to show the lender that you have a stable and consistent employment history as well as adequate income. The lender needs to know that you make enough money to pay back all of the money you borrow by the due date.
You also must be a legal citizen of the UK and over the age of 18. There are certain documents that you’ll have to turn over to the lender before you can get approved, such as a copy of your ID and proof of income. The lender will use this information to decide how much of a liability you are. Those who get these documents together ahead of time will increase their chances of getting the loan.
While your credit score obviously won’t be a factor, there could be certain things in your credit history that could prevent you from getting approved. Those who have a recent bankruptcy in their credit record might have a hard time getting a credit-builder loan.
Benefits of Getting a Credit-Builder Loan
Some of the main benefits of getting a credit-builder loan include:
• Higher score: You can seriously boost your credit score by successfully paying off one of these loans. Once you have a higher score, you will have an easier time getting other loans in the future.
• Multiple options: There are secured, unsecured and hybrid credit-builder options available. You don’t have to risk any collateral if you don’t want to.
• Easy approval: Getting approved for a credit-builder loan is fairly easy for most people, especially if you go through a private lender.
Affect on Your Credit
If you pay off your credit-builder loan in full and on time, you can increase your credit score by up to 30%. Just make sure that you aren’t late on any of your payments, because your credit could take a hit as a result. Paying your bills on time is one of the best and most effective ways to improve your credit. You will have a minimum amount that you can pay with each payment, though you can pay more. There is typically no penalty for paying off credit-builder loans early, but it won’t do anything extra to improve your credit.
Should I get a Credit-Builder Loan?
Credit-builder loans are certainly a good idea for many people, including those who have low scores. If your credit has prevented you from getting a loan from a bank in the past, you might want to try this option. Just remember that you should treat this type of loan like you would any other. It is crucial that you pay back all of the money you borrow plus interest by the agreed upon date. Take the time to find a good lender to borrow from so that you get the best possible deal on your loan.