The Loans Canada team sits down with Gary Schwartz of the Canadian Lenders Association to talk about open banking.
What is a Credit Builder Account?
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With bad or little to no credit history getting a loan may seem impossible. A Credit Builder Account is designed to help you boost your credit score which makes approval for loans, mortgages and credit cards, more likely.
A Credit Builder Account (also known as Credit Building Loan, Fresh Start Loans, Credit Rehab Savings Program) is one way you can start building a strong credit history. The amount borrowed is held in a secured account while you may make payments towards the total amount. Every payment is reported to the Credit Bureau which results in establishing positive credit. When the loan is paid off, the money is deposited into your account.
Having a good credit score is more important than you think. Lenders will always take into consideration your credit score before approving you for a loan or mortgage. While it seems like a hassle, it is necessary to take the time and look for ways to can improve your credit score.
How a Credit Builder Account Helps Boost Your Credit Score
A Credit Builder Account helps consumers build their credit history by providing the opportunity to make small monthly payments into a secured savings account. By making scheduled payments, positive monthly reports will be sent to the Credit Bureau, resulting in an increased credit score.
Once the Credit Builder Account is paid off, the initial amount is released to you and deposited into your bank account.
Most Credit Builder loan amounts are on the smaller side, ranging from $1,000 – $10,000, which means small monthly payments are manageable. Interest rates can vary from as low as 5% all the way up to 17.99%.
The Credit Builder Account terms also vary depending on the lender, ranging from 12 months all the way to 60 months.
For the Credit Builder Account to help boost your credit score, you MUST repay the loan on time. It is with positive payments that the lender will file good reports to the Credit Bureaus which in turn will lead to the improvement of your credit score.
How to Find a Credit Builder Account Provider
Smaller financial institutions and online lenders offer Credit Builder Accounts. Be sure to compare different loan providers and choose a Credit Builder Account that you can easily afford. It is essential that you commit to repaying the loan on time so that you can register good ratings on your credit score.
Also, try to look for lenders with added benefits. Climb offers free Credit Consulting to anyone. Their goal is to help Canadians build better financial futures and start the process with a Credit Bureau and Budget Assessment. If you are looking for a customized plan to help you get back on track, Climb is the place to go.
Capital One also offers a Secured Credit Card to help boost your Credit Score. Similar to a regular credit card except that approval is guaranteed as you secure the card with some of your funds. Monthly payments are also reported to the credit bureaus, impacting your credit score.
Pros of Credit Builder Account
- You will develop good savings habits, as a Credit Builder Account forces you to save money.
- Easy to apply for.
- When you have paid off the loan amount, the money is deposited into your account.
- As you make monthly payments, you will learn financial discipline.
- With a higher credit score, you will be more likely to be approved for a loan, mortgage or credit cards and receive better interest rates.
Cons of Credit Builder Account
- Late or missed payments will be reported to the Credit Bureau and will negatively affect your score.
- Credit Builder Accounts are not free, so be sure to ask about fees. They could be referred to as set up, admin or application fees and vary from lender to lender.
Interested in a Credit Building Account?
If you’re interested in getting started or are looking for more information, the experts at Climb can help guide you through the process of applying for a Credit Builder Account and answer any questions or concerns you might have.
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