Credit lines in our lives are very important. In many cases, it is essential. Credit is needed for almost anything: from buying a dream home, going on that foreign vacation you have always wanted, to give a much-desired family tour to your loved ones, to enjoy your life, to meet medical and monetary emergencies. The list goes on. There is no end to the benefits which a loan can give you. Anything expensive nowadays requires getting a loan.
Just like credit is important, credit score is much more so. Credit score is a numerical representation of your previous credit behavior. It refers to how you had handled your previous loans. Did you pay on time, or were you always late?
Your credit score is given by the credit bureaus. A credit score is in the range of 300 to 900. The closer you are to 900, the better loans and credit lines you can get. A high credit score tells of your high credit worthiness, which in turn refers to lower risk for loan providers.
While you may understand how important credit score is now, perhaps some of you have a bad credit score. A bad credit score is below a certain level, due to which you may not get good loans or any loan for that matter.
If you want to buy a good product with a loan or credit, you may get disappointed and frustrated to know that lenders will not give you this.
However, there is good news. Credit score is not constant, and therefore can change for the better too! Your credit score is a number that changes according to your credit actions.
If some of your credit actions have resulted in the score sliding down, it can also rise up with the right credit actions. All you need is responsible and right behavior. Soon you will see your score going up again. Here are some of the most common things you can do to improve your credit score again.
Be regular with your existing loan and credit products
Repay outstanding loan balances
Focus on keeping credit utilization ratio low
Get a fair mix or secured and unsecured loans
Do not suddenly close off your old credit accounts
Limit credit applications
As you can see, most of the options given above work for those who are pre-approved for credit products already. However, what about those who still find it hard to get any credit or new loans approved due to existing low credit scores? How can they get their scores up?
In this article, there are answers for that as well. Mymoneykarma is here to guide you to achieving the perfect credit score. Here is one good option for those with low credit scores, and who wish to build up the score: credit builder loan.
A credit builder loan is one which is especially designed to cater to the needs of those seeking to improve their low credit scores, and for those who are new to credit.
Someone who has no or low credit score finds it hard to get any kind of loan. When they ask for loans, lenders tell them to get a good credit score first. However, the only way to get a higher score is by getting loans in the first place. So this vicious cycle just goes on and on. Fortunately, we have credit builder loans.
While there are other options like fixed deposits and secured credit cards, credit builder loans are the best, since in case of the other options a person may not have any securities to deposit for getting loans. In such situations, a credit builder loan is very useful. Even a Gold Loan can be used as credit builder loans.
The main idea behind this financial instrument is to lend out small amounts that people can pay back easily in a short time, and therefore increase creditworthiness.
Credit builder loans are designed by and are available at many banks and other financial institutions. Here is how to get these.
Approach a credit lender who offers these
Since you do not have an existing credit profile, or a bad one, the lender will see other points like social media profile and bank transactions to build up your credit profile, to help them making a decision to lend
At times, banks may insist on lending just to those who have a account with them to reduce their own risk
These loans are similar to personal loans, but the amount can be available since the loan is very small
The tenure is shorter than normal personal loans, and ranges from 6 months to 1 year
Once the bank disburses the loan, you have to start making regular EMIs
When you pay regular EMIs, credit bureaus notice that and make improvements on your credit score
There are several types of credit builder loans available among the various lenders. Single lenders may not be able to provide all of these, though.
Pure credit builder loan: In this type, your loan is kept away in a locked savings account. You don’t have access to it yet. However, after you have repaid that loan with EMIs, the whole amount with interest is given back to the lender. Lenders may also charge a small fee.
Secured credit builder loan: In this, the amount of your savings account is used as loan security. Till you pay the loan, you can’t access it. While the interest rate is lower, the savings account can’t be used until you repay the loan.
Unsecured credit builder loan: This is the type that is commonly available. The loan amount is given and the borrower makes repayment as per schedule. However, it has a higher interest rate.
A credit loan builder is there for helping you increase your credit score. But at the same time, don’t forget that you still need to be responsible towards new credit after repayment of this loan, or your credit score will go down again.