credit builder loans

credit builder loans

Ask Creditnet: Are Credit Builder Loans a Scam?

Dear Creditnet: My credit scores are in bad shape and I've been researching ways to start rebuilding my credit so I can eventually get an auto loan at a decent interest rate. It turns out that the credit union I use offers a "credit builder loan" that is supposed to help my credit scores. How does a credit builder loan work, and will it actually improve my FICO scores? It kind of seems like a scam to me because the interest rate is pretty high, but I've used this credit union for a long time and have always been happy with their products and customer service. - Justin T. from MA

How Credit Builder Loans Work

I'm not a big advocate of credit builder loans because they essentially promote taking on debt for the sole purpose of building credit, and I don't think that's a very smart way to approach the credit-scoring game. However, credit builder loans might be a decent option for those who feel like their back is up against the wall because they've run out of traditional ways to build credit. If this includes you, here's a brief explanation of how credit builder loans work and why you might find them useful on your credit-building journey.