Are You Willing To Pay $50 for a Better Credit Score? Try a Credit Builder Loan

How a credit builder loan can improve your credit report, giving you a higher credit score. You'll pay for it, though -- our review suggests an average cost of $46.

Jul 13, 2014 at 12:41PM

Flickr / LendingMemo.

Want to buy your way into a better credit score?

Some banks are happy to oblige. A new product offered at many regional banks and credit unions allows customers to pay up to improve their FICO credit score.

Meet the credit builder loan
Credit builder loans are fairly new, and many more banks offer them today than ever before. A credit builder loan is a low-interest loan designed for the purpose of helping you build positive credit history.

Here's how they work:

  • A customer agrees to borrow a small amount of money, often $500 to $2,500.
  • When the loan is issued, the funds aren't turned over to the customer. Instead, the loan amount is placed in a savings account or certificate of deposit.
  • Over the next six to 18 months, the customer makes routine monthly payments (including interest) until the loan is paid off.
  • The funds, stored in a CD or savings account, are turned over to the borrower only when the loan is paid in full.

A banker's dream
Credit builder loans are a (small) goldmine for banks. The loans carry absolutely no risk for banks and credit unions, since the loan proceeds are not disbursed to the customer until the loan is paid off.

I searched the Internet and phoned up a few banks to find the typical repayment terms on a credit builder loan (sometimes referred to as a "starter loan.")

Here are a select few options:

Bank or credit unionInterest rate (APR)Total interest on a $1,000 loan
Credit Union A 3.11% $16.93
Credit Union B 5% $27.29
Regional Bank A 12.897% $71.23
Community Bank A 3% (+ $50 fee) $67.14
Average 9.8% including fees $45.64

Should you do it?
So you know how it works. You know what credit builder loans cost (anywhere from $17-$67). But should you take out a credit builder loan just to build credit?

The answer is maybe.

First, know that there are better alternatives. A no-fee credit card -- secured or unsecured -- is your best shot at getting a positive account on your credit report. And it won't cost you a dime, assuming you pay it off in full each month.

Failing that option, a credit builder loan in the smallest loan amount possible (why pay more interest than necessary?) from a local credit union (which seem to have to lowest-cost loans) can help you repair your credit with minimal cost to you. 

Sure, you'll be paying for the privilege of a better credit score. But in the worst case scenario, credit builder loans offer an opportunity to get on the good side of a bank at the price of dinner for two.

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4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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