It is vital that you establish a good credit record if you want to apply for car finance or a mortgage later in life. Without a healthy credit score, your chances of securing financing are reduced. You shouldn’t leave your quest to create a good credit record until it’s too late, or you’ll miss out on your dream home or car.
A valid question you might be asking is how to make a start on a credit record when no one lends you money because of your lack of credit record. It seems like an impossibility, and yet it isn’t.
How do you get started?
The key is to start off small and not get in over your head. If your first foray into the world of credit is a massive car loan, it’s going to put a lot of pressure on you. Something could happen that would affect your ability to pay.
You could lose your job or become ill, for instance. One late or missed payment would be all that is needed to put a dent in your credit score, thereby potentially ruining your chances of getting credit in the future.
This is where the credit builder loan comes in, as it offers you a low-risk opportunity to build a solid credit history and maintain a sound credit score. For this reason, you should make this approach your first step when you initiate your credit history.
How does a credit builder loan work?
From the name, it’s easy to figure out that a credit builder loan helps you build your credit. But how does it work? And how can an instant credit builder make your future credit better?
A credit builder loan is ideal for people with no credit history. It is a small loan that you pay back over a set period of months. Each repayment you make is recorded and sent to the credit bureau so that it begins to build a picture of you as a debtor.
The best way to approach it is to take out a credit builder loan from a company that offers zero interest options. Once your application is approved, the money is paid into your account. Now, here’s the hard part: leave it there! Do not spend the money if you want to avoid stress about the repayment at the end of the month. Each month, the repayment is deducted from your account until the loan is paid off. After that, the interest in the savings account is yours.
Advantages of credit builder loans
- The loan amounts are small, so even if you spend the money, the repayment is not too hefty.
- You create a pattern of financial responsibility in your credit score by demonstrating your commitment to repaying the loan and following through on it.
- Many of these loans are not only interest-free, but the company may also offer you a zero-fee option.
What are the risks of taking out a credit builder loan?
Taking out credit in any form or for any amount carries with it a certain amount of risk. The credit builder loan is no exception, which is why you should enter this type of transaction with your eyes open and in full possession of the necessary facts.
If you miss your payment or make it late, your credit score is immediately affected. These types of events remain on your credit record for a considerable time. If you show yourself to be unwilling or unable to service debt so early on in your credit journey, it won’t augur well for future credit applications.