Rant: That credit builder loan my cousin pushed on me ended up tanking my score

My cousin kept going on about a credit builder loan from a local credit union in Phoenix. Said it was a sure thing, guaranteed to boost my score 40 points in 3 months. I signed up in January. Paid on time every month. After 4 months my score dropped 22 points because they reported it as an installment loan with a high balance-to-limit ratio. Now I'm stuck in the loan for another 8 months. Anyone else get burned by this kind of advice?

3 comments

3 Comments

gracethomas10d ago

Tessa's right that credit builder loans can be tricky, but secured cards aren't always safer either - some of them also report a high credit limit that makes your balance look huge. The real issue is the way credit scores treat new installment debt as risky no matter how small the loan is. Best move is to just let the loan run its course and keep using your oldest cards lightly, since time heals most of these scoring dips.

phoenixk6410d ago

Started using a small secured card from a local bank here in Phoenix instead of the builder loan route. Put like a $300 deposit down and just used it for gas once a month, paid it off every week before the statement hit. My score climbed about 35 points over 6 months because the low balance kept the utilization looking clean. Builder loans just hit different because the system sees that full loan amount hanging there no matter what. Let that current loan ride out and maybe grab a secured card after if you want something simpler to manage.

tessa_carr10d ago

Read something similar on a finance forum where a guy's score tanked 30 points from a secured card reporting wrong. Credit builder loans usually backfire because the algorithm sees a big chunk of debt even if you pay on time. Your cousin probably meant well but those things are a gamble, best to stick with a secured card or just paying bills on time.