FOX6 Cents: New loan program helps young adults establish credit

HARTLAND, Wis. - When you’re a teenager, your credit history is sparse. For better or worse, that impacts your credit score. Establishing good credit is now a little easier – thanks to a special loan.

Establishing good credit

What we know:

As soon as Mackenzie Sutton became an adult, she needed a little direction. 

"I knew that having a high credit score would be valuable later in my life," Sutton said. "But I didn’t know quite how to get there." 

Sutton bought a new Subaru Crosstrek Sport two years ago. She had to build up her credit score from what she calls "average" to something lenders would marvel. 

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"To me, at that point in my life," Sutton said. "I needed to have a car loan payment that was affordable so that I could pursue higher education in Madison."

Credit ratings

Dig deeper:

According to credit reporting agency Experian, Sutton is not alone. 

On a credit scale where 300 is considered "poor credit" and 850 is "exceptional," Experian data finds most Americans credit scores are between 740 and 799. That’s the "very good" range. There are even more of us who have "poor" or "fair" credit and that’s why a local bank is stepping in to help.

What they're saying:

"You can’t build credit until you are 18 years old or take any loans out," said Bank Five Nine Hartland Branch Manager Amanda Drott. 

Drott said in the past, it was difficult for young people to establish credit on their own. In her more than two decades working in finance, Drott said she’s seen too many teens get tangled up in debt because they aren’t responsible with credit cards. Bank Five Nine’s new Achieve Credit Builder loan program aims to change that.

"It’s almost like a built-in savings plan while you’re building your credit too," Drott said. 

New type of loan

How it works:

A customer, typically a high school or college student, takes out a $1,000 loan from the bank. They make a monthly payment over the course of two years. The customer gets that money back, and they only have to pay $20 at closing. What they get from the bank is so much more.

"We report every payment to the credit bureau," Drott explained.

That helps you build credit. Bank Five Nine doesn’t even run a credit check to open the loan. There’s even a safety net for people who can’t make their monthly payment. 

"If anything is delinquent, we will not report that delinquent payment," Drott said. "We’ll use that $1,000 that’s in that savings account to pay of the rest of the loan."

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For auto loans, Drott said a higher credit score means more money in your pocket. She’s seen customers with bad credit pay 9 times more than someone with "good credit." Higher interest rates help lenders compensate for what they consider an increased risk. 

"Through that program, I was able to show people outside of the bank that I could make reliable payments," Sutton said.

Bank Five Nine said the majority of people who use the Achieve Credit Builder loan program to establish credit, about 30% use it to help reverse bad credit. Whatever your situation, Drott said there are things we can all start doing today to boost scores.

Tips to help

What you can do:

Don’t pay off a loan too early. It may sound counterintuitive – but regular payments over long periods of time help you establish credit. It also shows lenders you have stability.

Try not to use more than 30% of the credit available to you. Once you start pushing credit cards over that line, Drott said it can send a message to lenders that you’re in financial stress.

Sutton said she’s now cruising to a brighter future thanks to a simple loan. "I think it was the kickstart of my financial journey."