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It can be difficult to access funds if you have a poor credit history or no credit history.
But one option is a credit building loan – a specific type of loan designed to help borrowers build credit.
Here’s what you need to know about home builder loans:
Where to find a builder loan
You can find credit loans at a local bank or credit union, but you are more likely to find a lender online that specializes in this type of loan.
Here are some lenders who offer home builder loans. Note that these are not credible partners.
To verify: How to get a $ 5,000 personal loan
How to get a loan to build up credit?
When you take out a credit loan, you make regular payments like any other installment loan. But unlike a traditional loan, the lender will deposit your loan payments into a dedicated savings account. At the end of your term, you will get the balance of this savings account less interest and fees.
Unlike some traditional loans, it is usually very easy to qualify for a credit builder loan. These loans are designed for borrowers with bad credit, so you don’t have to worry about having good credit to apply.
Whether you have a series of late payments in your past or no credit history, lenders who offer homeowner loans usually focus only on your income when considering your application.
In addition to your income, the lender may also ask you:
- Employment verification
- Information on savings and existing debts
- Personal data to verify your identity and your ability to repay the loan
Whatever you decide, be sure to consider as many personal lenders as possible to find the loan that’s right for you. Credible makes it easy for you: you can compare your prequalified rates with multiple lenders in two minutes.
What are the advantages and disadvantages of a constructor loan?
Credit loans may make sense for some people, but they are not the right solution for everyone. Here are some important pros and cons of home builder loans to consider first:
- Reported to credit bureaus: Homeowner loans show up like any other regular loan on your credit report. As long as you make your payments on time, a credit loan can help you build credit for the life of the loan.
- Easier to get than a standard loan: You could get approved quickly with no credit or bad credit. Lenders who offer home builder loans generally only consider your income for approval.
- Also acts as a savings account: At the end of the loan, you will get your money back less interest and fees.
- You have to wait for your money: Unlike a traditional loan, the time to finance a credit builder loan is only at the end of your repayment term. You’ll pay off a home builder loan for a period of time, then get your money back at the end of the term minus interest and fees. If you need the cash quickly, you will need to consider another type of loan.
- Interest and fees: Interest rates on home equity loans can be high, sometimes exceeding 10% with some lenders. Although you will be repaid at the end, this interest and any lender fees will be deducted from your overall balance.
- Missed payments can still hurt your credit: Although credit loans are used to repair credit, you will still have to rely on on-time payments. Missing payments on a home equity loan could hurt your credit, just like any other loan.
Learn more: Personal loan rates
Do Credit Builder Loans Actually Work?
Yes, home builder loans can work. Just like a personal loan or a credit card, you can use a credit loan to add a positive history to your credit report and get a better credit score.
It usually takes about two to three months to establish credit for the first time, depending on Experiential. Depending on the scoring model used, building a credit score can take anywhere from a few months to six months.
Learn more: Short term loan
Alternatives to builder loans
If a credit loan doesn’t seem right for you, there are options that might help. Here are some alternatives to consider:
- Personal loan without guarantee: If you have decent credit, you may be eligible for a small personal loan that you can repay to further increase your credit. If you are not eligible on your own, you can apply for a co-signed personal loan from some lenders. Having a creditworthy co-signer can help you get approved.
- Secure personal loan: Unlike an unsecured personal loan, a secured personal loan requires that something of value be deposited as collateral. Because there is less risk to the lender, it might be easier to qualify for a secured personal loan.
- Secure credit card: To open a secured credit card, you will need to provide a refundable deposit. The amount you deposit will usually be the same as your credit limit. As long as you make payments on time, your credit will likely improve. Some lenders will allow you to replace your secure card with an unsecured one after a certain number of on-time payments, which means you will get your deposit back.
Everyone’s financial situation is unique, so it’s a good idea to research various options to find the right credit building option for you.
If you are considering a personal loan to build your credit, use our personal loan calculator below before borrowing to estimate how much you will pay for a loan.
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