Building credit is kind of like a job search: in order to get the job, you need experience. But to get experience, you need the job. Credit Builders and First-Time Buyers hit the same dilemma.
What’s a Credit Builder? That’s what we call a near-prime buyer who’s building or rebuilding their credit, or is just shy of prime approval. Credit Builders occupy a spot between prime and subprime on the credit spectrum.
To build credit, you need to have open credit lines to pay off. But to be approved for a line of credit, you need to build credit. This circle of creditworthiness just scratches the surface of who Credit Builders are, why they’re in need of better options, and how they can get building.
Who Are Credit Builders?
There’s no singular face of Credit Builders. Every case is different – but credit score is the common denominator in the Credit Builder group (it’s what they’re building). Roadrunner Financial defines Credit Builders as having a FICOⓇ score of about 550 – 660*.
FICOⓇ score is based on 5 factors: Payment History (if payments on time and complete), Credit Utilization (how much is used out of the total credit available), Length of Credit History (how long accounts have been open), New Credit (accounts opened recently), and Credit Mix (types of open credit lines like mortgage, credit card, etc. and how they’re all managed).
These main FICOⓇ factors add to the various backgrounds of Credit Builders. Maybe they missed some payments in the past, or have existing balances that will take a while to pay off. Whatever the reason, Credit Builders need access to options that won’t hurt their credit score.
Why Do They Need Options?
Like we mentioned earlier: in order to build credit, you need open lines of credit. However, Credit Builders don’t have as many good options when it comes to applying for credit.
Prime lenders could see Credit Builders as very risky, and so they don’t approve them as often as Prime applicants. It’s not for a bad reason – FICOⓇ and other reporting agencies create their scores as an indication of risk (check out our write up on lender decisions). So we also get subprime lenders, who know they can get away with bad loan terms that don’t benefit the customer.
When it comes to powersports and outdoor power equipment, a lot of prime lenders barely consider Credit Builder applications. This is why Roadrunner Financial offers loans for both Prime and Credit Builder customers – so Credit Builders can access a trusted loan from a reputable company, without sacrificing their financial future to a bad subprime deal.
How Can They Keep Building?
To continue improving credit score, keeping up with bills is a no-brainer. But instead of taking a bit off each open account, Credit Builders can consider paying more into the smallest account (to get it paid off first). Bringing just one account up to date can give them a FICOⓇ score boost.
Have a mix of credit types open, and use them sparingly. Having a credit card for purchases that can be paid off is easy. If credit cards feel a little risky, then a charge card that must be paid off monthly is another option. Paying off these small bills will help build credit.
And when shopping for a loan, try to find options that won’t impact credit when submitting applications. Loan pre-qualification can generate a loan offer without bringing down a credit score that’s trying to build up. SafeRate by Roadrunner Financial helps customers by offering a credit application that doesn’t damage credit. We use soft credit pulls so their credit score stays intact, and provide a genuine offer so they can know exactly what their APR could be – so shopping is risk-free.
Credit Builders are an underserved group in the financial world. Most people will need to open a line of credit at some point in their lives, but it’s harder for Credit Builders to find good options in their best interests. We provide options for those buyers so they can build credit while also riding their dream vehicle.
*FICOⓇ Scores are developed by Fair Isaac Corporation. FICOⓇ Credit Score, key factors and other credit information are based on data from ExperianⓇ and may be different from other credit scores and other credit information provided by different bureaus.
The above article is being provided for informational purposes only and shall not be considered any type of professional advice. Roadrunner Financial, Inc. (RF) does not warrant the accuracy of the information contained herein. Prior to utilizing RF as a lender, all dealerships are subject to underwriting approval by RF, in its sole discretion. No loans will be funded without a signed Dealer Agreement between the dealership and RF. All applicants for credit through RF are subject to credit approval. Other qualifications and restrictions may apply.