Credit builder loans are a simple, low-risk way to establish or improve your credit in Canada
Discover the benefits of credit builder loans and how they can help you.
Establishing credit doesn’t have to be a confusing process, but it certainly can feel that way, especially if you’re starting from zero. If you want to shore up your credit without depending on a credit card, a credit builder loan is a good choice. Canadians can make the most of this opportunity to improve or build their credit score from scratch.
Credit Builder Loan-What It Is
If you try to imagine a loan that’s purpose-built to grow your credit without providing any cash on top, then you’re thinking of a credit builder loan. Unlike traditional loans, credit builder loans don’t give you any money upfront to use as desired.
Instead, the loan amount is stored in a secure account, and you must make monthly payments until you’ve paid back the loan. It’s similar to a 0 per cent-interest loan but with a twist: payment is reported to credit bureaus to actually help build your score.
The Necessity of Building Credit
Your credit represents financial wisdom, from the type of mortgage you qualify for to the interest rate you pay on a credit card. For groups like newcomers, students, and young professionals in Canada, limiting your potential and lifestyle is the last thing you need.
Don’t be tricked into thinking “building credit” is code for “sign up for a bunch of credit cards or take on a ton of debt.” Credit builder loans are associated with a considerably lessened risk of being dragged into spiraling debt.
Benefits of Credit Builder Loans
- Accessible for Beginners: Credit-builder loans are for those who are new to credit or are simply looking for a starting point. Lenders don’t look to your credit score for approval; they’re typically less discriminating than traditional loans about who gets approved.
- No Immediate Debt: Since you’re not given the money you theoretically “borrow,” there’s less of a temptation to spend it irresponsibly. You can now have a safe way to build credit without building debt, too!
- Improved Financial Habits: Making repayments on a monthly basis ensures you’re staying on top of your payments. You may also develop useful saving techniques and come up with strategies on your own to pay back the money.
- Better Offers in the Future: If you have a better credit score, you have a greater chance of qualifying for lower interest rates on loans and premium credit cards later.
How Credit Builder Loans Impact Your Financial Health
Building credit is important, but the benefits don’t stop at your credit score. By continuing to pay off a credit builder loan, you’re building habits of paying debts and rates that will benefit you later in life. You’ll also be in a savings mentality because these payments will grow into an interest-bearing account in the interim of the loan commitment.
If you build good credit, you will likely have better terms when taking out a loan. This equals savings and more money in your pocket. Lower mortgage rates, better car leasing opportunities, and even lower insurance premiums are other benefits you gain over time.
Making the Right Choice
If you’re just getting started or rebuilding lowered credit, there may not be a better place to start than with a credit builder loan. It is great for someone looking to build credit in a secure way and have low risk.
Be sure to carry on with the loan! If you start missing payments, you’ll end up negatively affecting your credit score. Factor in the monthly payments into your budget and verify that you can afford them.
Setting Yourself Up for Financial Success
Building good credit doesn’t have to be complicated. Credit builder loans offer one clear path toward financial stability and opportunity for Canadians. Trying to own a home? Want to launch your business? Looking for some peace of mind? Your credit score can be a valuable asset toward funding. It doesn’t have to be too scary to get a good credit score.
Check your options. Do your homework. Start small and become financially responsible. Every positive payment you make today will bring you a step forward for a healthier financial tomorrow.
This content is a joint venture between our publication and our partner. We do not endorse any product or service mentioned in the article.
