What does a first date and your credit score have in common? They’re both very intimidating, but they can unlock so much!
Like meeting the love of your life and building your future together, a good credit score can unlock opportunities, from accessing loans with lower interest rates to securing a credit card with a higher limit.
To help you make the first loan, you can use a credit builder loan.
A credit builder loan is a financial tool designed to help individuals with limited or poor credit history gradually improve their credit score.
If you're new to credit or have had challenges managing debt in the past, this type of loan can be a stepping stone towards better financial health.
Keep reading as we dive deeper into credit builder loans and how they can improve your credit score!
Table of Contents
How Credit Builder Loans Work?
Good question, luv! In a nutshell, a credit builder loan allows you to borrow a small amount of money, which the lender holds in a bank account. You make regular payments toward the loan over a set period. Your consistent payments and overall trustworthiness as a borrower will then be reported to credit bureaus.
Loan repayment terms typically involve fixed monthly payments over a predetermined period, such as 6 to 24 months. These repayments are often smaller than those of traditional loans, making them more manageable. The key to success is consistency — making payments on time and in full each month.
Benefits of Credit Builder Loans
The most obvious benefit of a credit builder loan is the potential for improving your credit score. By paying off your loan responsibly, you can build a positive credit history, which contributes to a higher score. This improvement can take time, but the key is making those consistent, on-time payments.
As your credit score improves, you’ll become eligible for better financial products. This includes lower interest rates on loans, higher credit card limits, and access to other favorable financial services. With a higher credit score, you become less of a risk to lenders, which means they’ll offer you more attractive terms.
Credit builder loans also serve as a valuable educational tool. They can teach you about financial discipline, the importance of budgeting, and how regular payments can impact your financial future. Managing a credit builder loan successfully can provide you with the knowledge needed to handle more significant financial commitments down the line.
Eligibility and Application Process in the Philippines
Now let’s talk about something most people don’t like thinking about, but you should, luv!
Eligibility for a credit builder loan in the Philippines is generally based on a few key factors. While specific requirements vary between lenders, you’ll typically need to meet the following criteria:
- Age: You must be at least 18 years old.
- Income: You need to demonstrate a stable income, which proves that you can make regular loan repayments.
- Credit History: Some lenders may check your existing credit history, though the primary aim of a credit builder loan is to help those with little or no credit history.
Applying for a credit builder loan usually involves the following steps:
- Choose a Lender: Select a reputable lender offering credit builder loans. Ensure that their terms align with your financial goals.
- Submit Documents: Typically, you'll need to provide identification documents, proof of income, and possibly bank statements.
- Loan Approval: Once approved, the lender will outline your repayment terms and deposit the loan amount into a secured account.
- Begin Payments: Start making monthly payments, which are reported to credit bureaus. This is the most critical part of the process for improving your credit score.
Risks and Considerations
Like any financial product, credit builder loans come with risks. If you fail to make your payments on time, you could fall into debt, which could hurt your credit score rather than improve it. It's crucial to assess your ability to repay before committing to the loan.
Missed payments can have a detrimental impact on your credit score. Lenders typically report missed payments to credit bureaus, and this can be seen as a negative mark on your credit history, making it harder to improve your score.
Get Tonik Credit Builder Loan
Ready to start your credit-building journey? Start with a Tonik Credit Builder Loan! Designed to help you take control of your financial future, you can borrow up to P20K for up to 6, 9, or 12 months!
Download the Tonik App and apply today
