But there is another exception to that rule, and that’s a credit builder loan
Obviously, you’ll need to make all of your debt payments on time from now on. You should also avoid incurring any new debt, since it will be difficult to repay.
Let me explain: these are loans that are designed specifically for people with either no credit or bad credit. They’re offered by some banks and credit unions and are well worth having.
A credit https://guaranteedinstallmentloans.com/ builder loan works by giving you a loan in which the proceeds are deposited into a savings account. The monthly payments are automatically drafted out of the savings account by the lender to pay the loan. Loans are for small amounts, have reasonable interest rates, with terms of anywhere from 12 to 24 months.
Let’s say that you take a credit builder loan for $500. The loan will be for 12 months at 10% interest. The loan proceeds will immediately be deposited into a dedicated savings account in your name (you will not have access to the funds in the account). Each month the bank will withdraw an amount sufficient to cover the principal and interest.
The bank will then report your good payment history to the credit bureaus. The idea is that building good credit will help to offset a history of bad credit. This will increase your credit score more quickly than simply paying off bad debt.
Best of all, you won’t have to be concerned with making the monthly payments.
