by Emily Hechler 
Increasing your credit score is possible. There are many strategies and tips to follow to raise your credit score. One of the most effective strategies from Alltru Credit Union is getting a Credit Builder Loan. Let’s walk through how this loan works and if you should apply.
How Does It Work?
A Credit Builder Loan works similar to any other loan. You borrow a designated amount of money from the credit union and make monthly payments to settle your balance. Instead of borrowing to pay for a specific purchase, you borrow for the sake of increasing your credit score. When you make your monthly payments, the principal is stored in a separate savings account. After you pay your full balance, you’ll get access to the savings account. Plus, you’ll have a higher credit score if you make your minimum payments on time.
A Credit Builder is for You If…
If you want to improve your credit score and history, a Credit Builder Loan can be a great option. However, you need to make sure your financial situation will be improved before you take the loan. Otherwise, it’ll be a wasted effort.
You Have Little to No Credit History
This loan is created for the purpose of increasing your credit score. While you could try this strategy at other financial institutions, you may be denied for the loan because of a low or no credit score. We understand that you have to start rebuilding your score from somewhere.
You Want to Increase Your Credit Score
One of the best ways to increase your credit score is by making your minimum monthly payments on time. If your credit history is small, this loan can help you establish yourself as a responsible borrower to local and major financial institutions.
You Can Afford the Minimum Monthly Payment
This loan is only effective if you can afford to make the minimum monthly payments on time. Otherwise, you could cause more damage to your credit score. To help you determine what you can afford, use our Calculate a Loan Payment Calculator. Enter in the loan amount, loan term, and interest rate to calculate your monthly payment. See if you can fit this payment in your budget to figure out if you have the necessary funds to spend toward this loan.
A Credit Builder is Not for You If…
While making your minimum loan payments on time every month will help improve your credit score, you need to be cautious before applying. Building your credit score is a strategic effort. All tools may not work for your situation. Read these tips to help decide if a Credit Builder Loan isn’t a realistic option for you right now.
You Need Access to Money Fast
The Credit Builder loan is here to help you build credit. If you’re in a pinch for money fast, a long-term solution is not for you. A Personal loan or credit card may be a better solution. Make sure you have a plan in place to pay back the balance to avoid hurting your credit score even more.
You Can’t Afford a Hard Credit Inquiry
When you apply for any lending product, the financial institution will conduct a hard credit inquiry to determine if you are a credible borrower. This credit check will lower your credit score by a few points. If you can’t afford any decrease to your credit score right now, focus on making the minimum monthly payments on time for the next few months and reevaluate the status of your credit score.
You Need a Large Loan
Our Credit Builder loan is available in small balances to make the payments manageable for those with low credit. By keeping the monthly payments low, they are more likely to be paid on time. Late payments, which are more likely for large payments, will cause more harm than good.
Should You Apply?
Our Credit Builder Loan is a great tool when you use it wisely. Before applying for the loan, keep this list in mind. Determine if your financial abilities and goals align with making a monthly payment to increase your credit score. If you’re having trouble deciding if you should apply for a Credit Builder Loan, make an appointment with a Certified Credit Union Financial Counselor. Our team will evaluate your financial history, current status, and future goals to help create a plan to get your on the path to success. When you are ready, contact Alltru to apply for a loan or make an appointment with a financial counselor.
