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What is a Credit Builder Loan?

A Credit Builder Loan is a type of loan designed to help individuals with little or no credit history establish or improve their credit score. The loan is typically offered by a financial institution such as a credit union or community bank.

The way it works is that the borrower applies for the loan and is approved for a small amount, usually between $300 to $1,000. 

The loan proceeds are then deposited into a savings account, which the borrower cannot access until the loan is paid in full. 

The borrower then makes regular payments on the loan, typically over a period of 12 to 24 months. As the borrower makes payments on time, the lender reports the borrower's payment history to the credit bureaus, helping to establish or improve the borrower's credit score.

Credit Builder Loans to Establish Credit
Credit builder loans can be an effective way to establish or improve credit score, especially for people who have no credit or bad credit history.

It's important to review the terms and conditions of the loan and to make sure you can afford the payments, as with any other loan.

Credit Builder Loans are for Your Benefit
These loans are not a profit center for the Credit Union or Organization that makes the loan.  You will pay more in payments than you will get back.  The only benefit from these loans is for You to develop your Credit and perhaps start saving.

Make Your Payment on Time
It is very important that you make the payments on time.  If you miss a payment it will be reported to the credit bureau and have a significant negative effect on your credit.  Even though you do not have access to the money until the loan is paid off.

Cancel the Loan
If you are unable to make a payment on time, call your lender and cancel the loan or extend the time before your payment is late.   
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