Build Credit Responsibly with a Secured Loan

We’ve all heard the importance of good credit—a good credit report can help you get the things you need: a mortgage, a credit card, a loan, better terms on the money you borrow, an apartment, automobile, or even a new job. But, if you are just starting out in life and do not have an established credit history or need to rebuild your credit from financial hard times, building your credit can seem like a daunting task. 

What is a secured loan?

A secured loan gives you the opportunity to borrow against your own funds in order to establish a record of making payments on time, which is the most important aspect of establishing a good credit rating. A “secured” credit card is certainly one option, but an installment loan secured by your savings account or a certificate of deposit may be a better option.
How does it work?
  1. Find a financial institution that offers secured loans—local financial institutions usually have more flexibility and are more willing to help you obtain your secured loan.
  2. You will most likely be asked to make a deposit to a savings account or CD as collateral for your secured loan. Some financial institutions will have a minimum dollar requirement for a secured loan.
  3. Once you have made a deposit to your savings account or CD, you will be able to borrow an amount equal to the balance in your savings account or CD. 
  4. Make sure to make all of your payments on time and you are well on your way to building good credit.