Secured credit is an excellent way to rebuild credit, improve credit scores and a great way to learn personal finance management.
The credit card or bank loan is backed by money you keep in a bank savings account. The security deposit in the savings account will be earning interest.
The amount of money you use to secure the credit card cannot be used or withdrawn. If you have a little extra cash on hand try the method of piggybacking to establish a good credit and payment history.
Step 1: Apply for a Secured Credit Card
First, open a secured credit card at your bank, credit union or other credit card issuer such as the Applied Bank® Secured Visa® Gold Credit Card
Step 2: Request a Cash Advance
Next, get a cash advance on the new secured credit card and take that cash and open another secured credit card. Follow the same technique and get another cash advance, only this time deposit the cash into a high interest bearing savings account.
Start earning more on your money now. Use this savings account deposit to make payments on the two secured credit card accounts. Usually after a year the bank will turn the credit card into an unsecured credit card if your payments have been timely and your account is in good standing.
Step 3: Apply for a Secured Loan
Piggybacking can also apply to secured bank loans. If you have at least $500 cash on hand apply for a bank loan secured by a savings account. The credit requirements are very easy to qualify for as the loan is secured by the amount of your deposit.
Most banks and credit unions report secured bank loans to the major credit bureaus, Experian, Equifax and Transunion.
Bank loans rank high in credit scoring. You do not have to stop at just one secured loan. Once you obtain the first secured loan, take those funds, go to another bank and repeat the process. Now you have two bank loans that will report to the credit bureaus.
Make sure these loans are small enough that you can handle making at least two payments per secured loan before the actual due dates. When the banks report to the credit bureaus they will show these payments and you will have established an excellent payment history within (45) days of obtaining the loans. Get a secured bank loan now.
Step 4: Have your new secured accounts report to the credit bureaus
Before obtaining any secured credit account, make sure the bank or credit card issuer does the following:
- Reports the account to the three major credit reporting agencies, Experian, Equifax and Transunion
- Reports the limit as well as the balance
- Does not report that the account is secured, it should only report that it is a credit line. The credit reporting agencies may ding you if the account is reported as secured
Avoid any secured credit card account or secured bank loan that does not adhere to the above three statements. They will not improve your credit scores unless they report to the credit bureaus and report your limits.
