Whether you’re working to rebuild your credit, or you’re just starting out on your own and don’t have a credit history to your name, you’re likely to find that gaining access to loans and other types of credit isn’t automatic. Lenders want to see strong evidence of financial responsibility before they issue an unsecured loan, and if you don’t have those positive marks on your credit report, you’re going to be a much tougher sell to those institutions.
That doesn’t mean all hope is lost. Borrowers can improve their credit history by demonstrating good borrowing behavior through a product known as “starter loans.” Here’s a look at how these starter loans work, and how you can use them to improve your credit-worthiness and overall financial outlook.
Starter loans—sometimes referred to as “credit-builder loans”—are a kind of loan that grants you access to funds once you’ve made installment payments on that loan. This protects the lender by keeping the loan funds as collateral, but it also strengthens your credit report by reporting a new loan and regular on-time payments—both of which will improve your credit score.
Most starter loans offer additional benefits, including:
If past mistakes or financial circumstances have created negative marks that dropped your credit score, it can seem like your financial future has gone up in smoke overnight. But many consumers find that, through a combination of better financial decisions and utilizing valuable opportunities to rebuild credit, it’s possible to rebound from that bad credit quicker than thought possible.
If you’ve had credit applications rejected because of a low credit score and/or negative marks on your credit report, a starter loan can help set a new financial course that helps you increase your odds of approval in the future. A new starter loan can become the most recent account listing on your credit report, and the on-time payments will help build up a strong track record of reliability. Ultimately, this will increase your credit score—especially when combined with other responsible money management practices for your other credit accounts.
While almost every type of loan product requires a credit check when processing an application, there are some lenders who will bypass a credit check in exchange for additional safeguards on the loan.
If you’re worried about a credit check because you don’t have any credit history to your name, this is something lenders will take into account when considering you for a starter loan. As these products are designed to benefit people in your situation, you’re likely to find lenders that are accommodating and understanding—and eager to help by approving you for their loan.
Many different lenders offer starter loans to help customers build credit. These products can range from starter loans for teens just starting to establish financial independence, to online starter loans to build credit for consumers either establishing a credit history or rebuilding after a series of financial mistakes.
You should always check with banks, credit unions and lenders you’ve worked with in the past, particularly if you had a good experience with those institutions. It’s also useful to search for starter loans online, taking advantage of lenders and starter loan products offered by online institutions, or by traditional lenders you haven’t come across in your local community.
