Will a CD Help Rebuild Your Credit?

If you need credit or insurance, your credit score may impact whether you are approved. The information in your credit report determines your credit score, and the better your score, the easier it will be for you to qualify for credit products. If you have damaged credit, it's important to know that a savings instrument such as a CD cannot help rebuild it.

Identification

A certificate of deposit, commonly called a CD, is a savings instrument issued by a lending institution where a depositor deposits a fixed sum of money with the lending institution for a set time at a fixed interest rate. The certificate of deposit accrues interest over this period. It is not a credit-based account and as such, it is not reported to the credit bureaus; therefore, it will not help rebuild your credit nor affect your credit score in any way.

Consideration

Some banks issue a secured credit card, which is a credit card whose credit limit is based upon a deposit with the bank. The bank will keep that deposit in either a savings account or a certificate of deposit, depending upon the policy of the bank. The bank reports the secured credit card account to the credit bureau. If you maintain the card in good standing, some banks will convert the secured card into a non-secured card and return the deposit money to you.

Significance

According to MyFICO, how well you pay your bills overall accounts for 35 percent of your FICO credit score. It's the largest factor in the calculation of the score. Maintaining a positive payment history on a secured credit card and other credit-based bills will improve your credit score over time and rebuild your credit. FICO credit scores range from 300 to 850, and the higher the score, the better your credit. A late payment can drop your score by as much as 110 points, according to Bankrate.

Warning

Think twice before using a credit repair service. It could be a scam, according to the Federal Trade Commission. Not only do these companies charge fees for their services, but they may not be able to improve your credit at all. The Fair Credit Reporting Act requires credit bureaus to remove credit errors and inaccuracies from your report. The law does not mandate that credit bureaus remove negative information if its accurate. Negative accounts remain on the report for up to seven years, and bankruptcies can remain for up to 10 years.