So many of our readers are struggling with bad credit due to collection accounts. A single collection account can drop your credit scores by 50—100 points or more. And some people have multiple collections on their credit reports. That means their credit scores are really suffering!
But it can be tough to repair and rebuild your credit when you have collection accounts. You may be offered credit at very high interest rates (if you can get approved at all.) And credit repair is often expensive, and doesn’t always work.
So what can you do?
We are always looking for safe, reliable and not-too-expensive ways to rebuild credit, and we’re excited to tell you about one you’ve probably not heard of before: credit builder loans.
Here’s how they work:
A lender makes a loan, but instead of giving you the money upfront, it is kept in a savings account. You then make payments to pay off the loan. Once you’ve paid it off, the money in the savings account is yours! Think of it like the reverse of a secured credit card, where you place a deposit with a card issuer and get a card with a credit limit that’s often equal to that deposit.
Credit builder loans are unique in that they:
Traditionally, finding these loans has been somewhat hit or miss. Some credit unions and community banks offer them, but they aren’t widely advertised or well known.
Self Lender is a new credit builder loan program you can find online here. (Note this is a referral link; we’ve been recommending it since they launched and before that referral program was available.)
Since March, 1411 Self Lender customers have experienced an average credit score increase of 35 points while using a credit builder account.
- Self Lender, December 2016
We’re really excited about this program. You can get started with an upfront fee of just $12 and a monthly payment as low as $48.50. Options of $97 or $194 monthly payments are also available. The larger your monthly payment, the bigger your savings account when you pay off the loan.
Loans from Self Lender are reported as “installment” loans. That means they can help you establish a positive mix of different types of credit accounts on your credit reports. FICO says that consumers with a mix of accounts tend to have better credit scores.
(Feeling a little lost? Installment loans are loans for a set amount of money with a fixed repayment schedule such as auto loans, mortgages or student loans. Revolving accounts refer to credit cards and other loans where the amount you can borrow varies.)
All you need to get started with Self Lender is a bank account or debit card, valid email address, residential address, phone number, and social security number (SSN). You must be at least 18 years old. There is no “hard” inquiry that will affect your credit scores.
Self Lender is not only free to join, but it’s also a pretty inexpensive
option in the long run too. Let’s say for example, that you decide to
get a credit builder loan through them for $1100. That amount will be
held in an FDIC-insured CD account for 12 months in your name and it
will earn 0.10% APY* interest.
You will pay an administrative fee of $12 upfront and then you’ll make payments of $97 a month, which means you will have paid a total of $1176 by the time you complete your loan. (That’s $1164 in monthly payments plus the administrative fee of $12). And, your savings account value will have an expected value of $1101.10. As you can see, most of your money will go toward the savings account that will be yours at the end of the 12 month period.* According to Self Lender, the interest rate is 10.57% and the total APR is, at most 14.77%.
That’s significantly cheaper than most loans available to those with bad credit or no credit.
We hope you find this program helpful. Note that if you can’t make your payments on one of these loans on time, you may be reported as delinquent to the credit reporting agencies. So choose this option only if you have room in your budget for it.
For more advice on rebuilding your credit reports if you have collection accounts, get our free ebook, Debt Collection Answers: How to Use Debt Collection Laws To Protect Your Rights. It’s free on Amazon or you can download it from our website here.
*Please refer to the Self Lender website for full terms and conditions, which are subject to change.