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A credit profile (and score) can improve quickly and substantially with the start of good financial behaviors, including on-time payments on well-managed accounts actively reported to the credit bureaus. Practitioners have seen clients' scores jump 50-100 points in just six months with one new, small line of credit, even when clients do not pay back old debt. A good credit history can start today.
Got Active Accounts? Making on-time payments on active accounts reported to credit bureaus each month is the most important factor to building credit. Active accounts are defined as accounts with ongoing payment activity in the last 6 or 12 months. Remember that improving your credit score does not require building high debt. An active account on a $50 loan and an account on a $5,000 loan will provide the same credit boost.
Clients with no Active Accounts? Consider offering them a small credit builder loan or refer them to a community bank or credit union partner? Typical credit builder products include:
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Secured Credit Card - a client receives a credit card up to the amount in a custodial bank
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Secured Consumer Loan - a client receives a loan up to the amount in a custodial bank account
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Credit Builder CD Loan - offered by many credit unions, this product does not require a client to deposit savings upfront, but allows them to purchase a Certificate of Deposit through installment payments. At the end of the term, they own the CD with their savings goal.
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Unsecured Credit Builder Loan - a small unsecured loan offered by CDFIs to help clients build a credit history. These are generally also installment loans. Learn more Innovations.
Learn how Mr. R was able to improve his credit score with a credit builder loan!
What about building Alternative Credit?
Alternative credit refers to information that is usually not on a traditional credit report. Alternative credit can be helpful to those that are new to the credit or those that may have poor credit and need to have "good" information added to their report. Common alternative credit sources can include:
- Rent payments
- Utility payments
- Telecommunication payments: cell phone, land phone, internet service, cable
- Child support payments
Learn more about Alternative Credit and how to get it on your credit report.
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