How to Improve Your Credit Score With Secured Bank Loans

Banks are reluctant to give unsecured loans to people with low credit scores because of the relatively high risk of default. They are more likely to grant a secured loan, which is backed by a bank account, certificate of deposit or property such as a car, boat or house. If the borrower defaults on a secured loan, the bank will seize the account or property, according to Dollar Bank, an online financial institution. You can improve a low credit score with secured bank loans if you handle them responsibly.

Instructions

1

Choose the type of collateral you will use to secure your bank loan. For example, you may wish to use an existing certificate of deposit or home equity or buy a new item like a car. Select your collateral carefully because the bank can seize it if you stop making your payments. You could potentially lose your home or transportation, as well as destroy your credit rating, because of a foreclosure or repossession.

2

Talk to a loan officer and fill out an application at the bank where you normally conduct your business. Banks are more likely to extend credit to regular customers, especially if your credit is spotty, and the collateral raises your chance of approval even further.

3

Set up automatic payments for your secured bank loan. FICO, the largest credit score provider, cites your payment history as the biggest influence on your score. It accounts for 35 percent of the total number. Automatic payments eliminate the risk of forgetting to mail a check by the due date or having it get lost in the mail. They let you quickly build up a string of on-time transactions.

4

Request your credit reports from annualcreditreport.com, the official site for free, no-obligation reports, according to the Federal Trade Commission (FTC). Your secured bank loan does not improve your credit score unless it is reported to the credit bureaus. Call the bank if the loan does not appear on your report and ask it pass along account details to the three credit bureaus, TransUnion, Equifax and Experian.

5

Make payments for the entire length of your secured bank loan. You need to build up a long-term records of prompt payments to raise your credit score. Your history accounts for 15 percent of your overall score, according to FICO. The loan also diversifies your credit use if you currently have credit cards. FICO explains that your score is higher if you have different account types.