The Basics of a Credit Builder Loan for Non-US Residents
Making a move to the United States as a student comes with a slew of opportunities — a quality education, a career path with attractive earning potential, and the ability to make a life for yourself above and beyond what may be available elsewhere.
While the land of opportunity is a reality for some, transitioning to the US can be a rough go in one critical area: your credit profile. Unlike your favorite sweatshirt and jeans, any past credit use — good or bad — doesn’t travel with you from country to country. However, credit is an essential factor in establishing your life in the states.
But there is no need to worry. If you’re concerned about building credit as a visa holder, you’ve got a viable solution in a credit builder loan.
Building Credit with a Loan
A credit builder loan is a specific type of loan that you can get at your bank or credit union. For visa holders, it allows you the chance to repair damaged credit or build credit in a simple way. Alternatively, you could always look into personal loans with bad credit, if your situation calls for it.
Credit builder loans are a smart tool to use for boosting your credit history with a track record of on-time payment, all without having to apply for and potentially be turned down for a credit card or auto loan.
Two Types of Loans for International Students and Visa Holders
With a credit builder loan, international students and visa holders can request one of two types of loans:
A secured loan
This type of loan is backed up by collateral like a checking or savings account and is made available in the same amount as what is on that account. Because the bank can recoup losses if you stop paying on the loan (by taking what’s in the collateral account), secure loans often do not require a strong credit history.
An unsecured loan
This type of loan requires no collateral and typically no co-signer. Unsecured loans come in various amounts and with various interest rates (the cost of the loan), and they may be based on other financial factors, like income or education (i.e. as is the case with international student loans and international student car loans), instead of credit history.
Regardless of whether the loan is secured or unsecured, borrowers are required to repay the balance over time, as per the loan agreement established at the time the loan is funded. Typically credit builder loans for visa holders are available with a relatively low-interest rate and manageable monthly payments that extend up to two or three years.
Advantages of Credit Builder Loans
Credit builder loans are an attractive option for newcomers to the US for the following reasons:
- Qualifying for a loan is far easier than getting a new credit card, an auto loan or a large personal loan
- Credit builder loans do exactly what they say: they help you establish a credit history and work toward creating your credit score with either a bad or nonexistent credit score.
- Discover the difference between no credit and bad credit here: Stilt’s Guide – No Credit History vs Bad Credit
- Credit builder loans are reported to the three credit bureaus (Experian, Equifax, and TransUnion) as a debt owed which kick-starts your credit history
- With each payment, you make on time and in full, you establish your repayment history which acts as a baseline for a strong credit score
- Credit builder loans base your worthiness for a loan on factors not necessarily related to your credit history
Who offers Credit Builder Loans?
A number of lenders offer credit builders loans to international students and visa holders, but most require collateral or a co-signer in order to qualify. Stilt, a financial technology company, provides a number of loan options including credit builder loans to help visa holders create and maintain a strong credit history.
With a Stilt loan, international students and visa holders can secure funding for up to $25,000 based on merit and their current or future job opportunities, all without the need to pledge a savings account or have another person co-sign the loan.