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Understanding Credit-Builder Loans with O1ne Mortgage

Are you looking to improve your credit score? A credit-builder loan might be the perfect solution for you. At O1ne Mortgage, we are committed to helping you achieve your financial goals. Call us at 213-732-3074 for any mortgage-related needs.

How Does a Credit-Builder Loan Work?

A credit-builder loan allows you to make fixed payments into a savings account over several months. At the end of the term, the lender will return the balance of the account to you, possibly including some of the interest you paid. This process helps you build a positive payment history, which can strengthen your credit score.

If you have poor credit or no credit history, a credit-builder loan can help you establish a record of trustworthy financial behavior without using a credit card. Here’s what you need to know.

How to Get a Credit-Builder Loan

Unlike traditional loans, a credit-builder loan works in reverse. Instead of receiving a lump-sum payment, the lender sets aside a certain amount of money in a savings account. You then make monthly payments toward that account. At the end of the loan term, you get access to the balance. You’ll pay interest on the loan, but the lender may return a portion of that interest or the interest earned on the savings.

The benefit of a credit-builder loan is that the lender typically reports your payment history to the credit bureaus, helping you strengthen your credit with on-time monthly payments. Additionally, you’ll build savings you didn’t have before, making a credit-builder loan doubly useful.

How Can a Credit-Builder Loan Help My Credit?

Credit-builder loans generally come in increments of $300 to $1,000 with six- to 24-month terms. For example, if you apply for a $1,000 credit-builder loan with a 12-month term and a 5% annual percentage rate (APR), you’ll pay $86 per month, including $27 in interest. At the end of 12 months, your credit union will return the $1,000 to you, plus any dividends earned.

Additional Ways to Improve Your Credit Scores

Getting a credit-builder loan isn’t the only way to boost your credit profile. Here are some additional strategies:

• Opt for a secured credit card: A secured credit card requires a deposit, which usually becomes your credit limit. Use the card responsibly, and over time, the bank may convert it to a regular unsecured credit card.
• Join an account as an authorized user: Authorized users on credit card accounts can benefit from the primary cardholder’s payment history.
• Apply for a secured personal loan: A secured loan is backed by collateral, which the lender could take possession of if you don’t repay the loan as agreed.
• Apply for an unsecured personal loan: Unsecured loans aren’t backed by collateral, so they may have higher interest rates and be harder to get than secured personal loans.
• Use Experian Boost®: This free feature allows you to integrate eligible rent, utility, cellphone, and some streaming service payments into your Experian FICO® Score.

FAQs

• Does Missing a Payment Impact My Credit?
• Is It Possible to Get Out of a Credit-Builder Loan Early?
• What Happens After I Pay Off a Credit-Builder Loan?

The Bottom Line

Credit-builder loans are a financial win-win. They offer the opportunity to build credit and savings simultaneously, at relatively low interest rates and with the chance to earn dividends. They’re a wise choice if you’re looking to kick-start your credit journey or get back on track. By improving your credit score, you’re taking one of the most meaningful steps possible to make your financial dreams a reality.

For more information on credit-builder loans and other financial services, contact O1ne Mortgage at 213-732-3074. We’re here to help you every step of the way.

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