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Building Credit

Do Credit Builder Loans Actually Work?

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

If you have no credit or bad credit, getting a loan may seem impossible.

When lenders are considering a loan application, their main concern is whether the applicant can pay the loan back. If there is no loan repayment history, or a record of late payments or loan defaults, a lender will likely determine the applicant is too risky.

A credit builder loan is one way you can start building a strong credit history that should eventually help qualify you for other loans.

What is a credit builder loan?

Building good credit, whether you are starting from scratch or repairing a bad credit history, requires patience. You’ll need to put in the work to show lenders you are a consistently reliable borrower who makes on-time debt payments.

A credit builder loan is a great way to begin establishing a good credit history. Here’s how it works:

A financial institution such as a credit union, which typically issues credit builder loans, deposits a small amount of money into a secured savings account for the applicant. The borrower then pays the money back in small monthly installments — with interest — over a set period of time. At the end of the loan’s term, which typically ranges from six to 24 months, the borrower receives the total amount of the credit builder loan in a lump sum, plus any interest earned, if the lender offers interest.

LendingTree
APR

As low as 3.99%

Credit Req.

Minimum 500 FICO®

Minimum Credit Score

Terms

24 to 60

months

Origination Fee

Varies

SEE OFFERS Secured

on LendingTree’s secure website

LendingTree is our parent company

Advertiser Disclosure

LendingTree is our parent company. LendingTree is unique in that you may be able to compare up to five personal loan offers within minutes. Everything is done online and you may be pre-qualified by lenders without impacting your credit score. LendingTree is not a lender.


A Personal Loan can offer funds relatively quickly once you qualify you could have your funds within a few days to a week. A loan can be fixed for a term and rate or variable with fluctuating amount due and rate assessed, be sure to speak with your loan officer about the actual term and rate you may qualify for based on your credit history and ability to repay the loan. A personal loan can assist in paying off high-interest rate balances with one fixed term payment, so it is important that you try to obtain a fixed term and rate if your goal is to reduce your debt. Some lenders may require that you have an account with them already and for a prescribed period of time in order to qualify for better rates on their personal loan products. Lenders may charge an origination fee generally around 1% of the amount sought. Be sure to ask about all fees, costs and terms associated with each loan product. Loan amounts of $1,000 up to $50,000 are available through participating lenders; however, your state, credit history, credit score, personal financial situation, and lender underwriting criteria can impact the amount, fees, terms and rates offered. Ask your loan officer for details.

As of 17-May-19, LendingTree Personal Loan consumers were seeing match rates as low as 3.99% (3.99% APR) on a $10,000 loan amount for a term of three (3) years. Rates and APRs were based on a self-identified credit score of 700 or higher, zero down payment, origination fees of $0 to $100 (depending on loan amount and term selected).

How a credit builder helps boost credit

A credit builder loan helps borrowers build credit by providing an opportunity  to make small monthly payments. As the lender reports regular loan payments to credit reporting agencies, your credit history will show you can make regular, on-time loan payments over the life of a loan.

Most credit builder loans are small, ranging from $300 to $1,000, which means they also have small monthly payments. Interest rates vary by bank, so be sure you compare all your options to get the best rate.

To apply for a credit builder loan, you can visit a local lender’s branch or apply online. Because you won’t receive any money until the loan is paid in full, credit builder loans are typically easy to qualify for.

What to watch out for

Credit builder loans are not free, so be sure to ask about fees and interest rates. Some lenders may charge an application fee, and interest rates vary widely among lenders. While some offer rates in the single digits, other lenders’ rates may be significantly higher.

Where to get a credit builder loan

Here are examples of a few types of credit builder loans.

Credit unions

Many credit unions list details of their loans online and provide an online application.

1st Financial Federal Credit Union, for example, offers these terms:

  • Minimum Loan Amount: $300
  • Maximum Loan Amount: $1,000
  • Loan Term: 12 months
  • Interest Rate: 12%
  • Payment history reported to credit bureaus
  • 50% of interest refunded back with on-time payments

Banks

Some regional or local banks offer credit builder loans with the intention of helping clients build a good credit score as they work toward good financial health.

The Sunrise Banks Credit Builders Program, for example, places loan funds into a Certificate of Deposit (CD) for the borrower. The CD earns interest as the borrower repays the loan, which can be withdrawn when it’s paid in full. Consumers can borrow $500, $1,000 or $1,500, and they are assigned a repayment schedule of monthly principal and interest payments. Payments are reported to Experian, Transunion and Equifax.

Self Lender

Self Lender, based in Austin, Texas, is designed to help consumers increase their financial health. Working in partnership with multiple banks, Self Lender offers a credit-builder account that is essentially a CD-backed installment loan. In other words, you open a CD with the bank and they extend a line of credit to you for the same amount. When you make payments, they report it to the credit bureaus.

The money you put in the CD itself is what secures the loan.

Self Lender offers four loan amounts, each with 12 or 24 month terms. Borrowers can receive loans of $526 to $1,700. Fees vary from $9 to $15. See Self Lenders website for more details.

Pros of credit builder loans

  • A credit builder loan forces you to save money, as you are essentially making payments into a savings account.
  • Credit builder loans are secured by the money the bank has deposited for you, so they are typically easy to apply for.
  • When the loan is paid off, you will receive a payment in the amount of the loan. Some lenders also pay you dividends, or refund a portion of your interest.
  • You will develop good savings habits through a credit builder loan, which requires you to set aside money every month for a loan payment.
  • As you make payments on time every month, you’ll develop financial discipline that you apply to bigger loans.

Cons of credit building loans

  • Late or missed payments will be reported to credit reporting agencies, which could hurt your credit score.
  • They aren’t all free. For one, Self Lender charges a $15 non-refundable administrative fee.

Learn more:

Why your credit score matters

Credit scores are calculated by using your credit report, which is a record of your credit activity that includes the status of your credit accounts and your history of loan payments. Many financial institutions use credit scores to determine whether an applicant can get a mortgage, auto loan, credit card or other type of credit. Applicants with higher credit scores typically qualify for larger loans with lower interest rates and better terms.

Three federal credit bureaus, Equifax, Experian and Transunion, collect information from data providers and lenders, and use it to calculate your credit score.

Consumers typically have multiple credit scores. The two key scores are FICO and VantageScore.

FICO scores

FICO scores represent the likelihood that a borrower will pay back a loan on time. Scores range from 300 to 850, and over 90% of lending decisions in the U.S. are influenced by an applicant’s FICO score.

Five factors determine a consumer’s FICO score:

  • Payment history (35%)This is a record of your loan payment, and notes whether they were on time, late or missed.
  • Amounts owed (30%)Also known as utilization, this shows how much you use your credit limit. For example, if you have a credit card with a $15,000 limit and you have a debt of $3,000 on the card, your utilization is 20%. Ideally, your utilization should be less than 30% on all debts combined.
  • Length of credit history (15%)This measures the length of time you’ve had credit. If you opened your first credit card 20 years ago when you were a college student, for example, your credit history likely would be better than someone who took out their first loan a year ago. The longer you have credit, the longer you have had a chance to prove you are a responsible card user.
  • New credit (10%)New credit looks at how frequently you’ve inquired about your credit and opened new accounts. For example, when you open a new credit card, your credit score could be slightly lower for six months before going back up, because there will have been a “hard pull” by the lender on your credit report. Overall, however, you shouldn’t be hesitant to apply for new credit. In the long run, it may be better for your score, even if you experience a short-term hit.

VantageScores

VantageScore, which also measures your credit risk, is used by 20 of the 25 largest financial institutions. As is the case with FICO scores, higher Vantage scores lead to better loan opportunities. VantageScores range from 300 to 850, and are available for free online. VantageScore takes six factors into account.

Extremely influential

  • Payment history

Highly influential

  • Your age and type of credit (maintaining a mix of accounts over a long time is beneficial)
  • Percentage of your credit limit used (utilization)

Moderately influential

  • Your total debt balance

Less influential

  • Recent credit inquiries and credit behavior (don’t open a lot of new accounts at one time)
  • Available credit

How do I get my credit score?

There are numerous ways to get your FICO and VantageScore for free. Check out our guide on Ways to Get Your Free FICO Score. MagnifyMoney’s parent company, LendingTree, offers free access to your VantageScore, along with regular credit monitoring.

Other ways to build credit

Credit builder loans aren’t the only way to establish a good credit score. Here are some other options if you don’t want to take out a loan.

Secured credit cards

Like credit builder loans, secured credit cards are an easy way to build or rebuild credit history. The application process is the same, but secured credit cards require a deposit between $50 and $300 into a separate account. The bank then issues a line of credit that is typically equal to the deposit, allowing you to build a credit history without putting the lender at risk.

Many secured credit cards allow you to “graduate” and move to a traditional credit card after you’ve proven you can make payments consistently. Lenders will report your payments to credit reporting bureaus, and some offer autopay, online payments and alerts to help ensure you pay your monthly bill on time.

Keep in mind: Some secured credit cards have annual fees, along with APRs as high as 25%.

Unsecured personal loans

Unsecured personal loans can be easy to qualify for, and can help you build credit. These loans typically range from between $2,000 and $50,000, and some lenders will offer them to borrowers with lower credit scores.

The borrower will receive the money in a lump sum upfront, and can then use the money to repay the loan.

Using an unsecured personal loan to build credit, however, can be risky. Many unsecured personal loans come with origination fees, and interest rates can be high, which means the loan can be an expensive way to build credit.

LendingTree
APR

As low as 3.99%

Credit Req.

Minimum 500 FICO®

Minimum Credit Score

Terms

24 to 60

months

Origination Fee

Varies

SEE OFFERS Secured

on LendingTree’s secure website

LendingTree is our parent company

Advertiser Disclosure

LendingTree is our parent company. LendingTree is unique in that you may be able to compare up to five personal loan offers within minutes. Everything is done online and you may be pre-qualified by lenders without impacting your credit score. LendingTree is not a lender.


A Personal Loan can offer funds relatively quickly once you qualify you could have your funds within a few days to a week. A loan can be fixed for a term and rate or variable with fluctuating amount due and rate assessed, be sure to speak with your loan officer about the actual term and rate you may qualify for based on your credit history and ability to repay the loan. A personal loan can assist in paying off high-interest rate balances with one fixed term payment, so it is important that you try to obtain a fixed term and rate if your goal is to reduce your debt. Some lenders may require that you have an account with them already and for a prescribed period of time in order to qualify for better rates on their personal loan products. Lenders may charge an origination fee generally around 1% of the amount sought. Be sure to ask about all fees, costs and terms associated with each loan product. Loan amounts of $1,000 up to $50,000 are available through participating lenders; however, your state, credit history, credit score, personal financial situation, and lender underwriting criteria can impact the amount, fees, terms and rates offered. Ask your loan officer for details.

As of 17-May-19, LendingTree Personal Loan consumers were seeing match rates as low as 3.99% (3.99% APR) on a $10,000 loan amount for a term of three (3) years. Rates and APRs were based on a self-identified credit score of 700 or higher, zero down payment, origination fees of $0 to $100 (depending on loan amount and term selected).

The bottom line

While credit building loans can be a key step in establishing a strong credit history, it’s imperative you make all your payments in full and on time. When you are committed to building a strong financial future, successfully paying off a credit builder loan can be a significant factor in someday getting favorable terms on a mortgage and other loans.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Marty Minchin
Marty Minchin |

Marty Minchin is a writer at MagnifyMoney. You can email Marty here

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Build Your Credit Score: 6 Secured Cards With No Annual Fees – August 2019

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Secured cards are a great way to build or improve credit. When you open a secured card, you submit a security deposit that typically becomes your credit limit. This deposit acts as collateral if you default on your account, but you can get it back if you close your account after paying off your balance. As long as you use a secured card responsibly — for example, make on-time payments and use little of your available credit — you may see improvements in your credit score. Unfortunately, in addition to the upfront deposit, this credit-building tool can have extra costs, like an annual fee.

You can avoid that expense with one of these six no annual fee secured cards, which have a variety of uses:

Cards to consider

Rewards

Discover it® Secured

APPLY NOW Secured

on Discover Bank’s secure website

Rates & Fees

Discover it® Secured

Annual fee
$0
Minimum Deposit
$200
Regular APR
25.24% Variable

The Discover it® Secured is a standout secured card that provides cardholders the opportunity to earn cash back while building credit. A cashback program is hard to find with secured cards, and the Discover it® Secured offers 2% cash back at restaurants & gas stations on up to $1,000 in combined purchases each quarter. Plus, 1% cash back on all your other purchases. In addition, there is a new cardmember offer where Discover will match ALL the cash back earned at the end of your first year, automatically. This is a great way to get a lot of rewards without needing to do any extra work.In addition to a cashback program, this card provides valuable credit resources such as free access to your FICO® Score and a Credit Resource Center — just note these services are available whether you’re a cardholder or not. Discover also takes the guesswork out of wondering when you’re ready for an unsecured card (aka a regular credit card) by performing automatic monthly account reviews, starting at eight months of card membership.

What to look out for: There is a high 25.24% Variable APR for this card, so you could end up paying a lot more than purchase prices if you carry a balance. Try not to overspend and make it a goal to pay each statement in full so you avoid interest charges.

Low deposit

Capital One® Secured Mastercard®

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on Capital One's website

Capital One® Secured Mastercard®

Annual fee
$0
Minimum Deposit
$49, $99, or $200
Regular Purchase APR
26.99% (Variable)

The Capital One® Secured Mastercard® offers qualifying cardholders a lower security deposit compared to other secured cards. You will get an initial $200 credit line after making a security deposit of $49, $99, or $200, determined based on your creditworthiness. Typical secured cards require you to deposit an amount equal to your credit limit, so this card has added perks for people who qualify for the lower deposits.You can also receive a credit limit increase without making an additional deposit after making your first five monthly payments on time. This is beneficial for people who need a higher credit limit and don’t want to (or can’t) tie up their money in a deposit. Also, you’ll have access to CreditWise® from Capital One® and Platinum Mastercard® benefits that include travel accident insurance and price protection.

What to look out for: The $49 and $99 security deposits are not guaranteed and depend on your creditworthiness — that means you may still have to deposit $200. Also, it’s not a good idea A carry a balance on this card because it has one of the highest APRs at 26.99% (Variable).

Average deposit

Citi® Secured MasterCard®

The information related to Citi® Secured MasterCard® has been collected by MagnifyMoney and has not been reviewed or provided by the issuer of this card prior to publication.

Citi® Secured MasterCard®

Annual fee
$0
Minimum Deposit
$200
Regular Purchase APR
24.74%* (Variable)

The Citi® Secured Mastercard® requires a $200 security deposit, which is typical of secured cards and a good amount to establish your credit line. You can deposit more money if you want to receive a higher credit line, but if you don’t have a lot of money available to deposit, coming up with $200 is manageable. This card doesn’t have any additional card benefits like rewards or insurances, but you can access Citi’s Credit Knowledge Center for financial management tips.

Low APR

Visa® Secured Card from MidSouth Community FCU

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on MidSouth Community FCU’s secure website

Visa® Secured Card from MidSouth Community FCU

Annual fee
$0
Minimum Deposit
$200
Regular Purchase APR
11.15% Variable

Because MidSouth Community is a federal credit union, you need to be a member to qualify for this card. Membership is limited to people who work, live, worship, or attend school in the following Middle Georgia counties: Bibb, Baldwin, Crawford, Hancock, Houston, Jones, Monroe, Peach, Pulaski, Putnam, Twiggs, Washington, and Wilkinson. If you qualify, you may be able to get a secured card with an APR as low as 11.15% Variable.

What to look out for: This card is very restricted, therefore few people will be able to qualify for this low APR secured card.

Unrestricted low APR

Affinity Secured Visa® Credit Card

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on Affinity Federal Credit Union’s secure website

Affinity Secured Visa® Credit Card

Annual fee
$0
Minimum Deposit
$250
Regular Purchase APR
12.85% Variable

The Affinity Secured Visa® Credit Card requires cardholders to join the Affinity FCU. You may qualify through participating organizations, but if you don’t, anyone can join the New Jersey Coalition for Financial Education by making a $5 donation when you fill out your online application. This card has an 12.85% Variable APR, which is one of the lowest rates available for a no annual fee secured card and is nearly half the amount major issuers charge. This is a good rate if you may carry a balance — but try to pay each statement in full.

What to look out for: There may be a membership fee associated with this card if you don’t qualify through participating organizations. The fee you may have to pay is low at $5, but it may be an issue for people who don’t want to pay anything to open a secured card.

Unrestricted federal credit union

Savings Secured Visa Platinum Card from State Department Federal

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on State Department Federal Credit Union’s secure website

Savings Secured Visa Platinum Card from State Department Federal

Annual fee
$0
Minimum Deposit
$250
Regular Purchase APR
14.24% Variable

The Savings Secured Visa Platinum Card from State Department Federal is open to anyone, regardless of residence. If you aren’t eligible through select methods including employees of the U.S. Department of State or members of select organizations, you can join the American Consumer Council during the application process. There is no fee associated with joining since State Department FCU pays the $8 on your behalf. There is a rewards program with this card where you earn Flexpoints, which can be redeemed for a variety of options like gift cards and travel. The APR can be as low as 14.24% Variable, which is reasonable considering many secured cards from major issuers are above 23%.

What to look out for: If you decide to take out this card and become a member of the SDFCU by joining the American Consumer Council, make sure you do not go to the ACC’s website and submit a donation. That fee is waived by the SDFCU when you fill out your credit application. Simply select “I do not qualify to join through any of these other methods:” and select the ACC from the menu to avoid the fee.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Alexandria White
Alexandria White |

Alexandria White is a writer at MagnifyMoney. You can email Alexandria at [email protected]

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The Best Options for Rebuilding Your Credit Score – August 2019

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

The Best Options for Rebuilding Your Credit Score

A strong credit score is a vital part of your overall financial health. But rebuilding a damaged (or non-existent) credit score can feel impossible. Don’t despair. There are plenty of avenues you can take in order to rehabilitate your credit score and it all begins with identifying your starting point.

How Bad is Your Bad Credit Score?

Before you start to panic about rehabilitating your bad credit score, let’s determine if it’s even bad. Where do you fall in the range of FICO® credit scores? Below you’ll find what your credit score is considered, with ranges from Experian.

  • Above 740: Excellent Credit
  • 670 – 739: Good Credit
  • 580 – 669: Fair Credit
  • Below 579: Bad Credit or No Credit Score/Thin File

Your credit score isn’t the only thing that will keep you from being approved for credit. These factors are common reasons for being declined.

  • Your debt-to-income ratio is above 50%
  • You have no credit score
  • You have been building up a lot of debt recently
  • You are unemployed

In order to focus on rehabilitating your credit score, you’ll need to start with getting a line of credit. This may sound impossible because you’re constantly getting declined. Fortunately, there are options tailored specifically for people looking to re-establish credit.

[Read more about bad credit scores here.]

Rehabilitating a Bad Credit Score (579 and under)

Get a Secured Card

You’ll use your own money as collateral by putting down a deposit, which is often about $150 – $250. Typically, the amount of your deposit will then be your credit limit. You should make one small purchase each month and then pay it off on time and in full. Once you prove you’re responsible, you can get back your deposit and upgrade to a regular credit card.

Check out two of our favorite secured cards below, and more options for a secured credit card here.

Discover it® Secured

APPLY NOW Secured

on Discover Bank’s secure website

Rates & Fees

Discover it® Secured

Annual fee
$0
Minimum Deposit
$200
Regular APR
25.24% Variable

Perhaps our favorite secured card, Discover it® Secured, has numerous benefits for those looking to rebound from a bad credit score. There is a $200 minimum security deposit that will become your line of credit, which is typical of secured credit cards.  Additional perks include a rewards program (very rare for secured cards) that offers 2% cash back at restaurants or gas stations on up to $1,000 in combined purchases each quarter, plus 1% cash back on all other credit card purchases.This card has another great feature: Discover will automatically review your account, starting at month eight, to see if your account is eligible to transition to an unsecured card. Discover will decide if you’re eligible based on a variety of credit factors, and if you are, you will receive notification and get your security deposit back.

Capital One® Secured Mastercard®

APPLY NOW Secured

on Capital One's website

Capital One® Secured Mastercard®

Annual fee
$0
Minimum Deposit
$49, $99, or $200
Regular Purchase APR
26.99% (Variable)
Credit required
bad-credit
Limited/Bad

The Capital One® Secured Mastercard® is another option for those who want to strengthen their credit score. This card offers a potentially lower minimum security deposit than other cards, starting as low as $49, based on creditworthiness. Be aware the lower deposit is not guaranteed and you may be required to deposit $99 or $200. You can deposit more before your account opens and get a maximum credit limit of $1,000. There is a feature that will assist your transition from a secured to an unsecured card. Capital One automatically reviews your account for on time payments and will inform you if you’re eligible for an upgrade. However, there is no set time period when they will review your account — it depends on several credit activities. If you receive notification that you’re eligible, you will be refunded your security deposit and will receive an unsecured card.

Rebuilding from a Fair Credit Score (580 – 669)

Apply for a Store Credit Card

You might be used to checking out at a store and being asked if you’d like to open a credit card. While these credit cards come with really high interest rates and are great tools to tempt you into buying items you don’t need, there is a big perk to store credit cards: they’re more likely to approve people with low credit scores. Just be sure to only use the card to make one small purchase a month and then pay it off on time and in full. Unsubscribe to emails about deals and don’t even carry it around everyday in your wallet if you can’t resist the desire to spend. Read more here. 

Those unable to get a store credit card should apply for a secured card to build credit. With proper credit behavior, you can see your score rise and then you may qualify for a store card.

Here are our picks for two store credit cards:

Walmart Credit Card®

APPLY NOW Secured

on Walmart’s secure website

Walmart Credit Card®

Annual fee
$0
Rewards Rate
Save 3% on Walmart.com purchases including Grocery Pickup, 2% on Murphy USA & Walmart gas, and 1% at Walmart & anywhere your card is accepted.
Regular Purchase APR
19.15% - 25.15% Variable
The Walmart Credit Card® offers a three-tiered cashback program to benefit avid Walmart shoppers. Save 3% on Walmart.com purchases including Grocery Pickup, 2% on Murphy USA & Walmart gas, and 1% at Walmart & anywhere your card is accepted. Your cash back will be issued monthly as a statement credit for all earnings during that period. Note: This card can only be used at Walmart Stores, Walmart Supercenters, Neighborhood Markets, Walmart.com, Walmart and Murphy USA Gas Stations and Sam’s Clubs.

 

Target REDcard™ Credit Card

APPLY NOW Secured

on Target’s secure website

Target REDcard™ Credit Card

Annual fee
$0
Rewards Rate
5% at Target & Target.com
Regular Purchase APR
25.15% Variable

The Target REDcard™ Credit Card offers great perks that are sure to please frequent Target shoppers. You receive 5% off every eligible transaction made at Target and Target.com. The discount automatically comes off your purchase — no redemption needed. Other benefits include free shipping on most items, early access to sales and exclusive extras like special items, offers, and 10% off coupon as a gift on your REDcard anniversary each year.* Recently, cardholders received early access to Black Friday deals. Reminder: This card can only be used at Target and on Target.com.

Check If You Pre-Qualify

If you’re on the higher end of the spectrum, you may want to consider checking to see if you’re pre-qualified for any cards. This will help minimize your chance of rejection upon applying because pre-qualification performs a soft pull on your credit. This doesn’t harm your credit score.

Your goal in this credit range should be to use no more than 20% of your total available credit. Pay your bills on time and in full. And keep pumping that positive information onto your credit report until you reach the 700+ category. 

Who You Need to Avoid

Access to credit and loans may come easier than you expect, but that should also be a danger sign. There are several lenders who are willing to provide lines of credits or loans to people with poor credit. These options are often very predatory. If you’re simply trying to rebuild your credit history and improve your credit score, then there is no need to take these offers.

Here are the options you need to avoid when trying to rebuild credit:

1. Payday and Title Loan Lenders – There is never a need to take out a payday or title loan if you’re trying to merely rebuild or establish credit history. Most of these lenders don’t report to the bureaus and you’ll likely end up in a painful vicious cycle of borrowing and being unable to pay it down.

[How to get out of the payday loan trap.]

2. First Premier – The bank claims to want to offer people a second chance when it comes to their finances, but its fee structure and fine print prove the exact opposite. First Premier charges you a processing fee of up to $95 just to apply for a credit card. Then it levies a $75 annual fee on the credit cards and most cards only come with a $300 limit. You’re paying $170 for a $300 credit line! The APR is a painful 36%. In year two the annual fee reduces to $45, but then you’re charged a monthly servicing fee of $6.25. And to top it all off, you’ll be charged a 25% fee if your credit limit is increased. Stay away from this card! Use the $170 it would take to open the card and get a secured card instead.

3. Credit One – Credit One does an excellent job of confusing consumers into thinking they’re applying for a Capital One card. The logos are eerily similar and easily confused.

Creditone

Capital one

While Credit One is not as predatory as First Premier or payday loans, there is really no need to be using one of its cards to rebuild your credit score. For starters, all Credit One cards have annual fees that range from $0 to $75 for the first year, then $0-$99 in subsequent years. If you’re approved for a card with an annual fee, it will be deducted from your initial credit limit. For example, receiving a $300 credit limit and $75 annual fee means you’ll only have access to an initial $225 credit limit. In addition, there is a high 20.24% - 26.24% Variable APR. Given the high annual fees, we recommend saving your money and using a secured card with no annual fee to begin rebuilding your credit score.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Alexandria White
Alexandria White |

Alexandria White is a writer at MagnifyMoney. You can email Alexandria at [email protected]