Having a good credit score is crucial for many aspects of adult life. Your credit worthiness plays a large role in your ability to secure any type of loan, such as getting approved for a home loan, and your rating depends largely on your credit score. However, there are loans that are meant to allow customers to establish credit histories and to grow their savings.
These “credit-builder” loans are typically available through credit unions and community banks. Recently, though, similar types of loans are being made more widely available using digital technology.
Self-Lender (now available nationwide) and Credit Strong (available in all states except North Carolina, Vermont, and Wisconsin) are two financial technology companies which offer these types of loans online.
How do these loans work?
Unlike other loans, you don’t need a pre-existing credit history to qualify for these loans. The purpose of these loans is to help customers build both their savings and their credit score. This is accomplished by tying borrowing to forced savings.
Customers will typically receive a small loan — something like $1000. This money is then set aside in a special savings account and is unavailable to the customer until the loan is paid off. Customers make payments in monthly installments over the course of one or two years. When the loan is paid off and the savings account is made available to the customer, they will have access not only to the money in the account but also any interest earned. Credit history is established when loan payments are reported to the major credit bureaus. The customer will then qualify for more traditional loans and credit cards.
How do I qualify?
To qualify for this type of loan, you must be at least 18 years of age. You also must have a debit card or bank account to make loan payments. As mentioned above, these businesses don’t check credit scores. However, it is still necessary for them to verify the borrower’s identity and to screen for fraud.
Is there a downside?
Building both your credit score and beginning to put back money for emergencies are both important steps to making your future more secure. Credit-builder loans allow you to kill two birds with one stone, so to speak. However, a word of caution: don’t pay late. Late payments will not only incur fees but may also be reported to the credit bureaus. You’ll still establish a credit history, but not the kind you want.
Looking to buy a new home? Need help with mortgage related services?
Once your credit score is in order, finding the right loan to back your mortgage can still be an intimidating process. Allow Stonebridge Mortgage Group to help.
For professional assistance with mortgages, look no further than Stonebridge Mortgage Group. You can rely on Stonebridge Mortgage Group to help guide you through the home buying process. If you’re ready to apply for a loan and want to go through the process online, Stonebridge Mortgage Group offers online applications. We can help you get pre-approved for a mortgage, walk you through the real estate loan process, and assist you with mortgage solutions, both residential and commercial. Stonebridge Mortgage Group serves the greater Portland area and are located in Gresham, Oregon. Why wait to buy your new home?