Have you ever wondered why it takes longer to improve your credit score than it takes to reduce the score? The lack of progress when trying to improve your credit score can be incredibly frustrating.
This is when credit builder loans can be a useful tool. These accounts combine a savings account with a short-term secured consumer loan.
The short term loan payments are made directly to your savings account. After fully repaying your loan, the account converts into a savings account.
Your credit score benefits if you make the required loan payments on time for the length of the loan agreement. These accounts can be a great tool to increase your credit.
This article will provide a full review of the CreditStrong credit builder account. Credit Strong is a division of Austin Capital Bank, which is an FDIC insured bank in Texas.
How do Credit Scores Work?
Credit scores are assigned to individuals based on their personal credit history. Lenders use credit scores to assess the potential credit risk of a borrower.
Your credit score is determined based on the following weighted factors:
- Payment history (35%).
- Amounts owed (30%).
- Length of Credit History (15%).
- Credit Mix (10%).
- Credit Inquiries (10%).
Credit builder loans are designed to improve your credit score by focusing on the first two credit score metrics: payment history & amounts owed.
For more credit score information, see How to Increase your Credit Score.
Credit Score Ranges
There are various types of credit scores on the market too, but the main two that lenders use are the FICO score and the VantageScore.
FICO scores ranges are:
- 300-579 “Poor”
- 580-669 “Fair”
- 670-739 “Good”
- 740-799 “Very Good”
- 800-850 “Exceptional”
VantageScore ranges are:
- 300-549 “Very Poor”
- 550-649 “Poor”
- 650-699 “Fair”
- 700-749 “Good”
- 750-850 “Excellent”
What is CreditStrong?
Credit Strong is owned by Austin Capital Bank. Austin Capital Bank is an FDIC insured institution and is located in Austin, Texas and founded in 2006.
Credit Strong offers online financial products through a proprietary Trident technology platform. All accounts and funds managed on the Trident platform are fully insured by the Federal Deposit Insurance Corporation.
How Does a Credit Builder Loan Work?
Credit Strong’s credit builder loans are funded by a loan from Austin Capital Bank. When you open an account, the following transactions occur:
- You receive a loan from Austin Capital Bank into an online savings account under your name.
- The funds are locked in your account as security for your loan.
- Every month, you make a monthly payment of principal and interest into your savings account as payment on your loan.
- The principal amount pays down your loan balance.
- The interest portion is paid to Credit Strong as a service fee.
- You earn interest on the principal amounts paid into your savings account each month.
- As you repay the loan amount, Credit Strong reports your payments to all three credit reporting agencies.
- When the loan is fully repaid, the loan account converts into a savings account and you can withdrawal the funds at your discretion.
- You receive full access to the principal payments you made into your savings account.
As long as you made your monthly loan payments into your savings account on time, your credit score will benefit from the payment history on your installment loan.
Your payment history has a 35% credit score weighting. By improving this metric, a credit builder account has the potential to increase your credit score.
The key is to maintain good credit habits while repaying the installment loan on your account.
Credit Builder Account Options
The credit builder account options range based on the account size and repayment term.
- Repayment terms range from 12 months to 120 months.
- Loan sizes range from $1,000 to $25,000.
$1,000 Credit Builder Account Example
Let’s assume you open a $1,000 Credit Strong Build & Save account with a 12 month repayment period.
The account would include the following repayment schedule:
- $1,000 loan is provided to you in a locked account.
- A one-time admin fee of $8.95 is charged at account opening.
- You make 12 monthly payments of $89.
- Total payments made after 12 months equals $1,068.
- $68 represents interest paid to Credit Strong.
- After 12 months, you will have a savings account with $1,000.
- The $1,000 principal balance in your savings account after 12 months does not include any interest credited to your principal balance.
- The effective loan rate in this example is 14.04% APR.
Credit Builder Account Benefits
- No credit score or income requirements necessary to open an account.
- You can cancel the account at anytime with no penalty.
- Credit reporting to all three credit bureaus.
- No upfront security deposit is required.
- Online account opening in as little as 5 minutes.
- Account flexibility by choosing a loan amount ranging from $1,000 to $25,000.
- Flexible repayment periods ranging from 12 months to 120 months.
Requirements to Open a Credit Builder Account
The Credit Strong application process is completed online. The process typically can be completed within 5 minutes.
Account opening requirements include the following:
- You need to be at least 18 years old with a physical US residence.
- Provide a social security number or individual tax payer identification number.
- Have a checking account, debit card, or prepaid debit card with a good standing.
- Provide a mobile phone number.
- Have an email address.
Does a Credit Builder Account Make Sense for You?
Credit Strong’s credit builder loan is designed for people that want to improve their credit score.
These accounts can be especially beneficial for people with lower starting credit scores because your credit score and your income is not required to open a credit builder account.
So a credit builder loan can be much easier to obtain than a traditional loan or a credit card.
Important Considerations
Keep in mind that you must be able to make your monthly loan payments on time, otherwise you may not see a credit score improvement.
Additionally, there is a one-time $8.95 admin fee that is paid at account opening. Also you are paying interest to Credit Strong as part of your loan payments.
In the above example, the loan APR was 14.04%. For a $1,000 loan, this represents $68 of interest cost.
If you would like to build your credit score, the Credit Strong loan builder can be a very good option.
