New Type of Loan Helps Consumers Build Credit
Thousands of people with poor credit scores struggle with a way to improve their financial situation. It is extremely difficult to build your credit score without the ability to get credit and prove that you can pay back that loan.
But the Local Initiatives Support Corporation is providing a unique way for people with poor credit scores to enhance their standing.
The new program works like this: through your bank, you get a loan for a certain amount of money. But that money is not given to you. Instead, it is locked away in a special savings account. You cannot have access to this money until your loan is paid in full.
The borrower makes monthly payments at a 9% fixed interest rate until the loan is repaid.
Every month you make a payment, the money goes into your savings account. The bank reports the payments just as it would for any loan payments.
If for some reason you can no longer pay on the loan, the bank will take the money you owe out of the savings account and give you what remains after the bank is made whole.
If you manage to get through the entire loan term, you will have money in your account that you can then use for whatever you’d like. Essentially, you take out a loan where you don’t get the money until the loan is paid off. It’s almost a forced savings account.
Why not save money and bypass the loan entirely? Because you would not be building credit. Not to mention that the reason you likely need the loan is because you have trouble saving money. This gives you no other option.
If you want a creative way to build your credit score, this is an option worth considering.