Credit-Building Products: Making Them Work for You

Whether you’re building your credit from scratch or looking to rebuild damaged credit, sometimes a credit-building product can help. When used correctly, a credit-building product can help you establish positive credit history and improve your credit score.

Your coach might recommend a credit-building product if you don’t have a credit score (appears as “N/A” on your credit report). Your coach might also recommend one of these products if opening a new line of credit could help you reach your financial goals, but you might not be approved for a traditional credit card. If you are looking to improve your credit by opening a new trade line, your coach would be happy to help you choose a product that will suit your needs and interests.

There are two principle types of credit building products:

A Credit Builder Loan is a loan designed to help you build positive credit history.

  • Operates like a typical loan, but you do not have access to the funds immediately.
  • Loan is initially deposited into a savings account, and you can access the funds only after you have finished paying off the loan.
  • Typically has a low interest rate.
  • Can also be a tool to build savings.
  • The account will close after you finish paying off the loan. This means that it will no longer be contributing as heavily to your positive credit history.

A Secured Credit Card is a credit card where you put down a deposit to cover your line of credit.

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  • Operates like a typical credit card, but you put down a deposit when you open the card. This deposit will usually be the same as your credit limit (e.g. if you put down $200, your credit card will have a limit of $200).
  • Allows you to build positive credit history by making on-time credit card payments.
  • A secured credit card is a revolving account, meaning you can keep the account active for as long as you want by making small charges and paying off the balance.
  • Often can be transitioned into traditional credit cards after a period of time, and you can recover your deposit.

Before you open a credit-building product, here are a few things to consider:

  • A credit building product will be reported to the credit bureaus just like any other loan or credit card. That means that even though you might not have access to your loan money or may have put down a deposit to cover your credit limit, late payments can still hurt your credit score.
  • Before you open an account, check to make sure it will be reported to all three credit bureaus.
  • If you are thinking about opening a secured credit card, check out our Secured Credit Card Resource to learn more about your options and best practices.

As always, your coach would be more than happy to answer any questions about what products can best help you reach your financial goals!