Establishing good credit is one of the keys to financial fitness. Your credit is a key player in many financial goals including owning a home, owning a car, and getting a credit card. It might seem daunting at first to establish good credit or repair bad credit, but did you know you can use a loan to help you out? Here’s how:
Using a Shared Secured Loan to Build Credit
Personal loans are a great tool to use in a number of financial situations such as making home improvements or covering unexpected medical expenses. But, if you have less than ideal credit, you likely won’t qualify for a standard personal loan. And sometimes, if you do qualify for a personal loan with poor or fair credit, the interest rate will be high.
One alternative to a standard personal loan is a shared secure loan or a CD secured loan. These loans not only help you cover unexpected expenses, they also go a long way to building and improving your credit. They are an excellent choice for anyone who has little to no credit or who has credit that needs improving.
What is a Shared Secured Loan?
Many personal loans don’t use collaterals or assets to back up or secure the loan. But a Shared Secure Loan is a personal loan that uses money from a savings account (also known as a shared savings account when it’s at a credit union). In other words, if you have $5,000 in a savings account, you can use this money to secure a personal loan of the same amount.
When lenders look at your credit history and see limited or less than ideal credit, they won’t have the evidence to back up that you’ll be able to pay the loan back as agreed. Having funds in a savings account can stand in the place of good credit history by showing lenders that you are only borrowing against what you will be guaranteed to be able to pay back.
What is a CD Secured Loan?
A CD Secured Loan is very similar to a Shared Secured Loan, expect it uses money in a Certificate of Deposit as an asset to back up the loan amount instead of a savings account. A CD is a special type of savings account that doesn’t let you access the money until an agreed-upon date. During that time, the money in the account grows with a fixed interest rate.
CD Accounts are an excellent way to grow a fixed amount of money over a small period of time. Depending on the interest rate and terms, you could grow $5,000 into $5,800 over the course of five years simply by having your funds in a high-yield CD. For a CD Secured Loan, the amount in your CD will determine how much you can borrow.
What are the Benefits of Shared Secured Loans?
There are many benefits to using shared secured loans over personal loans. Here are just a few:
- Helps Build Credit – Having an open loan account, utilizing an account, and making monthly on-time payments all help build positive credit. These three factors are major contributors to your credit score, so simply having a shared loan and following the repayment terms can go a long way to building and improving credit.
- Helps Build Good Habits – Learning to manage your money, make monthly payments, and keep track of your funds are all excellent habits to build. In fact, they are essential habits for anyone who wants to be financially fit.
- Helps You Save – Because you can only borrow against what you currently have saved, these loans help you build up your savings account. The more you save, the more money you’ll be able to borrow against.
Are You Ready to Use a Shared Secured Loan to Build Your Credit?
If you have money saved away, and you also want to build or improve your credit, consider a Shared Secured Loan. You can speak with one of our loan consultants to learn more about how these shared secure loans can help your specific situation.