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?
- 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.
- 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.
- 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.
- Make sure to make all of your payments on time and you are well on your way to building good credit.