MADISON, Wis. (2/7/12)--A New York Times article this week cited credit union credit-builder loans as a way to help consumers establish credit or improve their scores.
"Credit builder loans are offered as a way for credit union members to do a couple of things: get something good on their credit reports and set aside some money for future use," credit scoring guru John Ulzheimer said in the article, which appeared in the New York Times "Bucks" blog.
The article explained that credit-builder loans typically work in one of two ways: Under one arrangement, the borrower makes payments on the loan over a period of time, perhaps a year, and the credit union puts the money in an interest-bearing savings account. Once the loan is paid off, the borrower gets access to the money.
In another instance, the borrower may provide the money to the lender, who then puts the money in an interest-bearing savings account as collateral. Then, the lender provides a line of credit up to that amount, which the borrower pays off in monthly installments.
Under both arrangements, the lender reports the borrower's payments to credit reporting agencies.
Steven Rick, a senior economist at Credit Union National Association (CUNA), told New York Times reporter Tara Siegel Bernard that nearly 15% of the 7,400 credit unions in the U.S. offer a credit builder program.
"You can see if you're eligible to join a credit union through the aSmarterChoice.org website, though you'll have to call or go to credit union's individual sites to see if it offers these loans," Bernard wrote.