How to Build Credit With a Secured Loan
No matter where you are in life -- just starting to establish credit or an experienced borrower with a damaged credit rating -- you can improve, build or help repair your credit easily with a secured loan. In essence, 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. Secured loans are fairly easy to get because the lenders are essentially at no risk of default.
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Instructions
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Pick a bank or credit union to start a secured loan. Smaller local institutions will generally be willing to help you obtain your secured loan.
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The secured loan is called a "secure" loan because the bank uses either a savings account or a certificate of deposit (CD) to use as collateral against what you are borrowing.
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You will need to put money into the savings account or CD. Some financial institutions (banks or credit unions) will have a minimum of $500 to be able to obtain a secured loan.
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Once you have your savings account or CD, you will be able to borrow an amount equal to the balance in your savings account or CD. Most financial institutions will have a lower rate available the higher the balance is in your savings account or CD.
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Make your payments and make them on time. According to the Fair Isaac Corp., which generates the FICO credit rating number used by most lenders to assess your credit, your payment history accounts for 35 percent of your number -- the largest factor among several that are weighed.
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Tips & Warnings
Remember to always pay your loan on time.
