Using Secured Bank Loans to Improve a Credit Score

There are numerous tools that can be used to improve a damaged credit history and low credit score.  Along with removing any derogatory items that may be inaccurate in a credit report, the next best tactic is to add new credit and build a quick credit history.

There are several ways to add credit to a credit report.  Adding credit that helps improve a credit score can be a slow process, but a process that is generally necessary to rebuild credit profile that is the foundation of a good credit score and then make that credit appear to be a worthwhile credit risk for lenders and creditors in the future. 

Adding credit to a credit report can be a simple as obtaining a new car loan or credit card.  The unfortunate truth is that most consumers with a poor credit history and low credit score are not going to be granted a new car loan or credit card.

One method for acquiring new credit is to obtain a secured bank loan.  A bank loan typically carries a lot of weight with creditors and credit score models.  For those consumers that have the minimum financial resources to do so, a secured bank loan can provide a lift to a credit score that has been damaged by various delinquent creditor payments. 

To obtain a secure bank loan, the prospective borrower will need to take some money and open a savings account with a financial institution that provides loans on existing bank accounts.  Secure bank loans are generally found more often at small banks and credit unions as opposed to the larger financial institutions and national banks.  The most common type of secure bank loans are usually those executed with a loan against a savings account. 

A possible conflict with a credit union is that the smaller credit unions do not always report the payment and loan arrangement to the big three credit reporting agencies.  This factor is critical since the reason for the loan is to repair a poor credit profile with new credit and new credit history.  If a bank doesn’t report the payments to a credit bureau, it will defeat the purpose of obtaining the loan.

If the banks in the area do not offer these types of secured loans, another option is to see if the bank will provide an unsecured personal loan, a loan with a cosigner or a loan with another form of collateral to secure the loan.  In either of these cases, the end result is a new bank loan reflected in the credit report that will, hopefully, have a good payment history in the future to drive a credit score higher.

When applying for a secured loan make sure the bank or credit union does report to the credit bureaus, investigate the interest rate on the loans, the maximum amount that can be borrowed based on the security as well as the available repayment schedule.  Often, savings account loans have very desirable interest rates since the loan is 100% secured and easy to collect on by the bank.  And always be vigilant about the monthly loan payments, do not miss a loan payment and ruin the value of these loans.