Are your clients struggling to build credit?
Well, credit builder loans are a solid option even for people with poor credit and no credit history, and on this week's Podcast, I share three of the top loans for credit repair clients!
In the 20 years since releasing my first credit repair software, I've helped thousands of people repair their credit and file millions of disputes.
During that time, I learned the secrets to boosting scores and proven strategies for building credit.
Credit builder loans are designed to help the people who need it the most: people with poor credit and no credit history. They make it possible to boost scores, build credit, save money, and prove creditworthiness all at the same time.
Credit builder loans are typically offered by local community banks, credit unions, and online lenders. They're considered small, low-risk loans ranging from $500 to $3,000 and with terms of around 6 to 24 months.
For those unfamiliar with these types of loans, when you take out a credit builder loan, the lender deposits the loan amount into a savings account.
The lender reports the loan amount to the credit bureaus, and it improves your credit utilization. You then make monthly payments on the loan, which are reported to the bureaus, improving your credit history. Once you pay off the loan in full, the lender returns the money you paid into the account.
If this sounds less like a loan and more like a savings account, it's because it kind of is.
Some call credit builder loans "savings-secured loans" because the loan is secured by the money you deposit into the account.
Here's a quick example of how one of these loans might work:
- First, you take out a credit builder loan of $1,200.
- You agree to a 12-month payment plan.
- The lender deposits the $1,200 into a locked savings account.
- You make 12 on-time monthly payments of $100 and pay off the loan.
- The leader unlocks the savings account.
- You collect your $1,200 – minus any fees.
Over those 12 months, you improved your credit utilization, your credit history, and your credit score, and you saved $1200.
For people with few options who can't qualify for other types of credit, credit-building loans are some of the best tools available!
HOW THIS RELATES TO US
Our most successful credit heroes, the ones that change a ton of lives and grow giant businesses, do more than just dispute errors. They teach their clients better financial habits and ways to improve their credit.
Taking a little time to educate your clients on credit building helps them make better financial decisions. They will be less likely to apply for harmful credit cards or loans, making your job of repairing their credit much easier.
THE THING TO REMEMBER
Credit builder loans can be a great tool, but they're not the best financial option for everyone. There are some drawbacks.
Credit builder loans are affordable for most borrowers, but they typically have higher interest rates than traditional loans. You may also need to pay a deposit, which is usually a percentage of the total loan amount.
So, if a client has a good credit score and can qualify for a traditional loan with a lower rate, they should focus on other credit-building options.
WHY THIS IS IMPORTANT
Credit builder loans are best suited for people trying to build credit for the first time, those with little credit history, those having trouble qualifying for traditional loans, or those rebuilding after a major financial setback.
So, if your client is considering a credit builder loan, they probably need all the help they can get.
Before they apply for anything, remind them to compare multiple lenders. It doesn't matter if they're local or online. Look for lenders with the best reputation. Compare the different interest rates, terms, and fees, and most importantly, make sure the lender reports everything to the credit bureaus!
I looked at each of the most popular credit builder loans available online, and there are a few I recommend.
WHAT YOU NEED TO KNOW
First things first, none of the credit builder loans I'm about to mention are affiliated with me or CRC in any way.
Most content creators who recommend credit cards, loans, or lenders only do it because they get paid or some type of commission. That's not the case here.
I don't get paid for promoting them. I'm only recommending these loans because the offers are reasonable, and I truly want to help people.
Also, please note that the loan terms listed here are accurate as of October 2023 and may change.
THREE OF THE TOP LOANS FOR BUILDING CREDIT
The DCU Credit Builder Loan
Digital Federal Credit Union offers credit builder loans from $500 to $3,000 for 12 to 24 months at 5% APR. You don't have to make payments for the first 60 days, and the money you pay into your account earns dividends.
The DCU credit builder loan doesn't require a credit check, applying won't result in a hard inquiry, and your payments are reported to four credit bureaus, adding Innovis on top of Experian, Equifax, and TransUnion.
While Digital Federal Credit Union is available in all 50 states, you will need to become a DCU member to apply for a loan.
SELF Credit Builder Account
Self offers four standard 24-month credit-builder loan options ranging from $500 to $3,000 at around 15% APR. The four loans have preset monthly payments starting at $25, plus a $9 administration fee.
Self loans are available in all 50 states; applying won't result in a hard inquiry, and your payments are reported to the three main credit bureaus.
The money you pay into your account cannot be touched until the end of the 24-month loan term. But Self allows you to cancel the loan any time and get the money you paid back — minus interest and fees.
While Self isn't the cheapest option, they do offer additional credit-building products like Rent, Cell Phone, and Utility Reporting programs.
CreditStrong Instal Account
CreditStrong offers a variety of credit builder loans, including longer terms, higher limits, and even options for building business credit.
For personal credit, their main focus is their Instal loan of $1000, with terms ranging from $48 a month for 24 months to $28 a month for 48 months.
All CreditStrong deposit accounts are FDIC-insured, and you can cancel your account at any time without paying additional fees.
Applying for a CreditStrong loan will require a credit check, but it only results in a soft inquiry that won't impact scores. CreditStrong loans are not available nationwide. Residents of Vermont and Wisconsin are ineligible.
As always, no matter the recommendation, matching the type of credit to the individual is essential. Local community banks and credit unions may offer better terms than the ones listed above, so review all the options.
If you want six months of our credit repair software for FREE and access to our advanced disputing and business courses, sign up for our Masterclass!
MY FINAL POINT
Credit builder loans are low-risk, high-reward options for people with limited options. Taking a little time to educate your clients helps them make better financial decisions and makes your job of repairing their credit much easier.
I'LL END BY SAYING
If you still need a Credit Repair Cloud account, check it out. It's the software that most Credit Repair businesses in America run on. Sign up here for a Free Trial!
And if you'd like to change lives and grow your Credit Repair business, check out our Credit Hero Challenge!
It's an amazing program, and we've got another challenge starting in a few days, so grab your spot right now at CreditHeroChallenge.com!
So take care, Credit Hero!
And Keep Changing Lives!