How Credit Builder Products Can Improve Your Financial Well-Being

Evolution of the Credit Score: Comparing Old and New Criteria
Fiona Staff7/21/2023

Your credit score is a three-digit number that is calculated according to your credit history, including the types of credit based accounts you own, how long you have been managing those accounts, and whether you make your payments on time.

The credit score you hold can affect many aspects of your life. Having no credit — or a low score — may result in getting denied for certain products and services, being offered limited credit terms or high interest rates, and can even affect a future job search. 

Thankfully, consumers today have the option of turning to credit building products, which can help you establish and grow your credit score in a shorter period of time. Here’s a look at how these products work and the ways they can boost your overall financial wellness. 

How Credit Building Products Work (and What They Do)

As the name implies, a credit building product is one that is designed to help you establish and boost your credit history, which will improve your credit score. These products can fall into two different categories:

  • Credit building loans

  • Score boosting apps or platforms

Credit building loans, such as Credit Builder Plus by MoneyLion, use a short-term loan to help build your credit. You may or may not have access to any of the borrowed funds right away, but your monthly payment will be reported to the credit bureaus to help build your credit score. The money you pay into the loan will often be set aside in a separate savings account. Once the loan is fully “repaid,” you’ll be given access to the saved funds.

With a score boosting app, like Experian Boost, you can connect the bills you already pay (but aren’t reported to the credit bureaus) to your credit history. Eligible bills — like your rent, electrical service, water bill, and even your Netflix subscription — can be added to your credit. Your past and future on-time payments can immediately boost your score and lengthen your reported payment history.

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6 Ways That Credit Builder Products Improve Your Financial Wellbeing

Credit builder products can make it easier to begin establishing credit (for those with a limited credit history) or help boost your score faster. Why does that matter? Well, a healthy credit score can go a long way toward improving your financial wellbeing. Here’s how:

You’ll find it easier to get approved for credit-based products

Lenders use your credit score as a benchmark when determining how much risk you pose as a borrower — essentially, how likely you are to repay your debts on-time and as agreed. So, the lower your credit score and more limited your credit history, the less likely you are to get approved when you apply for personal loans, credit cards, home mortgage loans, and more.

By using a credit builder product to boost your score, you’ll improve your creditworthiness. In turn, lenders will be more likely to approve your applications when it comes time to take out credit-based products. 

You’ll snag lower interest rates

The best interest rates are typically reserved for the most creditworthy borrowers. If you have no credit or a low score, you’re likely to get a higher interest rate on loans, lines of credit, and credit cards. By increasing your credit score, though, you’ll unlock lower rates and more enviable terms, saving you money in the long run.

Your credit limits could increase

The higher the credit limits on your credit cards and lines of credit, the more buying power you have available when you need it. You’ll also maintain a lower credit utilization ratio when you do spend on those accounts, which helps to keep your credit score high.

The better your credit score and history, the more likely lenders will be to extend a higher credit limit on your account. So by boosting your score with a credit builder, you’ll not only unlock a bigger spending limit but also help ensure that you can keep your utilization low.

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It could be easier to get a better job or home

Did you know that your credit score may come into play the next time you try to rent a home or apartment or even apply for certain jobs? 

How someone manages their finances can often be a consideration for employers and landlords alike, and credit checks aren’t uncommon when applying with either one. A credit builder can help you establish your credit history and increase your score, which serves to increase your chances of approval.

Your auto insurance rates could improve

You might also be surprised to learn that your credit score can be a factor when trying to purchase a new auto insurance policy. 

Carriers consider financial health to be a factor when evaluating a customer’s overall risk profile. If you have no credit or bad credit, you could be seen as someone who is willing to take more risks, including behind the wheel. While a carrier can’t deny you coverage based on your credit alone, they can raise your rates as a result of your credit history.

You might avoid security deposits for utilities and services

A soft credit check is a common step when opening new accounts for certain utilities and services, such as cell phone or cable plans. If you have bad credit or a limited credit history, you might be required to pay a deposit on the account.

Credit builders can be very beneficial here, allowing you to demonstrate a history of on-time payments and even get credit from providers who may not otherwise report to the bureaus. This can sometimes be enough to get a deposit requirement waived, keeping more of your own money in your pocket.

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Bottom Line

It’s no secret that a higher credit score goes a long way toward improving your overall financial wellness. Different credit builders — including loans, apps, and platforms — can help you not only establish new credit, but also allow the bills that you pay each month to boost your score even further. 

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