Credit unions and community banks helped pioneer “credit-builder” loans that allow customers to establish credit histories and to begin growing their savings.
Now, as The New York Times reports, some start-ups are making similar loans more widely available, using digital technology.
Financial technology companies offering the online loans include Self Lender, which works with several banks, and Credit Strong, created as a division of Austin Capital Bank. Both companies are based in Austin.
The loans tie borrowing to forced savings. Customers typically receive a relatively small loan—say, $1,000—and agree to have the money set aside in a special savings account.
The money stays there while the borrower pays off the loan in monthly installments, typically over a year or two. The goal, the lenders say, is to enable people with no or low credit scores to build credit histories, while also helping them set aside money for unexpected expenses. The loan payments are reported to the major credit bureaus, helping to establish a credit history that can then enable the borrower to qualify for more traditional loans and credit cards. Read the full story.