4 Ways a Savings-Secured Loan Can Help You Rebuild Credit

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Student Loan Hero Advertiser Disclosure

Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.

savings-secured loan

Improving your credit is always a balancing act, but it can be hard if your credit score is low. Few lenders will approve you for a new loan or credit account if you have bad credit.

Yet the best way to rebuild credit is to responsibly manage and repay debt, which you can do only if you can borrow in the first place.

If you’re facing this dilemma, the solution could be right in your savings account. Here’s how your savings can help you get a savings-secured loan you can use to improve your credit.

How a savings-secured loan can help you rebuild credit

With a savings-secured loan, your savings account, money market account, or certificate of deposit (CD) acts as collateral. In return, you get the credit you need. Here’s how a savings-secured loan works:

  • You pledge part of your savings. The lender then places a hold on those funds for the life of the loan. Your savings remain in your account and continue to earn interest, but the lender can seize the money if you don’t repay the loan.
  • After you receive the loan, you typically repay the debt with fixed monthly payments and a set repayment period.
  • Once your loan is paid off, the hold on your savings is removed and you’ll have full access to your account.

Savings-secured loans can be effective tools to improve your credit. Here are four benefits that make them a smart option to repair your credit.

1. Bad credit won’t block your application

Lenders typically approve unsecured personal loans for applicants with good or excellent credit. This way, lenders limit their risk and avoid losing money.

But savings-secured loans are a more accessible option, even for borrowers with bad credit. The lender faces little risk of losing money by extending you a savings-secured loan.

If you fail to repay the debt, the lender can keep your savings to recoup its losses.

2. You’ll rebuild credit while paying lower interest rates

When calculating interest rate offers on traditional personal loans, most lenders base the rate on your credit score. If you have bad credit, you’ll likely face higher interest rates than someone with better credit.

Not only are savings-secured loans easier to get, but their low risk offers another benefit in low personal loan rates. You’ll usually pay less interest on a savings-secured loan than you would on an unsecured personal loan.

3. Paying on time could build a positive payment history

You’ll build a strong credit payment history if your lender reports monthly savings-secured loan payments to the credit bureaus.

If you make every loan payment on time each month, you hopefully can boost your credit score. But the opposite is also true: If you make a late payment or miss a payment, your credit could be hurt.

Make sure to check with your lender to see if your monthly payments are reported to the credit bureaus.

If you’re not great at remembering your debt’s due dates, set up systems that can act as fail-safes:

  • Enroll in automatic payments through your lender. Your lender will withdraw payments from your connected bank account, so you’ll never miss a due date.
  • Set up bill alerts from your lender or bank to notify you when the payment due date is near.

4. A savings-secured loan can improve your credit mix

Lastly, consider your credit mix — that is, the kinds of loans and accounts listed on your credit report. Owning different types of credit accounts will give you a better credit mix, which could boost your credit score.

In the FICO scoring model, for example, your credit mix accounts for 10% of your score, according to myFICO.

If you don’t already have installment loans, a savings-secured loan could diversify your credit mix. This, in turn, could boost your credit score and make you a more attractive credit applicant in the future.

Where to get a savings-secured loan

If you’re interested in using a savings-secured loan to build credit, you’ll need to find the right lender. There are two types of lenders that most commonly offer savings-secured loans:

  • Credit unions: Savings-secured loans are a popular product for credit unions to offer. Consider joining a credit union to get access to savings-secured loans. If you’re already a member of a credit union, see if it offers savings-secured loans.
  • Major banks: A few major national and regional banks also offer savings-secured loans. Wells Fargo offers both secured personal loans and lines of credit, and SunTrust offers loans secured by CDs.

Most lenders will require you to have an open savings account with them before they approve you for a savings-secured loan. Because of this, it’s often simplest to start your search with your current bank.

Once you find a lender you like, you can apply for a savings-secured loan. If possible, limit yourself to a small loan secured by savings. You’ll have lower monthly payments, tie up less cash to get your loan, and hopefully be able to repay the debt quickly to free up your savings.

Want to see your credit score rise even faster? Find other strategies and tools you can use alongside a savings-secured loan to rebuild credit. As you’re working to rebuild credit, check your scores and reports often to ensure your loan details are correctly recorded.

Do this and you’ll soon build a credit score of which you’ll be proud — one savings-secured loan at a time.

Interested in a personal loan?

Here are the top personal loan lenders of 2018!
LenderRates (APR)Loan Amount 
1 Includes AutoPay discount. Important Disclosures for SoFi.

SoFi Disclosures

  1. Personal Loans: Fixed rates from 6.200% APR to 15.240% APR (with AutoPay). Variable rates from 6.145% APR to 14.685% APR (with AutoPay). SoFi rate ranges are current as of June 1, 2018, and are subject to change without notice. Not all rates and amounts available in all states. See Personal Loan eligibility details. Not all rates and amounts available in all states. See Personal Loan eligibility details. Not all applicants qualify for the lowest rate. If approved for a loan, to qualify for the lowest rate, you must have a responsible financial history and meet other conditions. Your actual rate will be within the range of rates listed above and will depend on a variety of factors, including evaluation of your credit worthiness, years of professional experience, income and other factors. See APR examples and terms. Interest rates on variable rate loans are capped at 14.95%. Lowest variable rate of 6.145% APR assumes current 1-month LIBOR rate of 1.97% plus 4.175% margin minus 0.25% AutoPay discount. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account.
  2. Terms and Conditions Apply: SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi’s underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Financing Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636.. (www.nmlsconsumeraccess.org)

2 Important Disclosures for Citizens Bank.

Citizens Bank Disclosures

  1. Personal Loan Rate DisclosureFixed interest rates from 6.49% – 19.49% (6.49% – 19.49% APR) based on applicable terms. Lowest rates range from 5.99%-18.99% (5.99%-18.99% APR), are for eligible applicants, require a 3-year repayment term, and include our Loyalty and Automatic Payment Discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
  2. Loyalty Discount: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower has a qualifying account in existence with us at the time the borrower has submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, student loans or other personal loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI and VT. This discount will be reflected in the interest rate and Annual Percentage Rate (APR) disclosed in the Truth-In-Lending Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan, and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
  3. Automatic Payment Discount: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their Citizens Bank Personal Loan during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account two or more times within any 12-month period, the borrower will no longer be eligible for this discount.

* Important Disclosures for Upgrade Bank.

Upgrade Bank Disclosures

  1. Personal Loan Rate DisclosureFixed interest rates from 6.49% – 19.49% (6.49% – 19.49% APR) based on applicable terms. Lowest rates range from 5.99%-18.99% (5.99%-18.99% APR), are for eligible applicants, require a 3-year repayment term, and include our Loyalty and Automatic Payment Discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
  2. Loyalty Discount: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower has a qualifying account in existence with us at the time the borrower has submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, student loans or other personal loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI and VT. This discount will be reflected in the interest rate and Annual Percentage Rate (APR) disclosed in the Truth-In-Lending Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan, and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
  3. Automatic Payment Discount: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their Citizens Bank Personal Loan during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account two or more times within any 12-month period, the borrower will no longer be eligible for this discount.
7.73% – 29.99%$1,000 - $50,000
Check rate nowon SLH's secure site
5.90% – 15.24%1$5,000 - $100,000
Check rate nowon SLH's secure site
5.96% – 35.97%*$1,000 - $50,000Visit Upgrade
8.00% – 25.00%$5,000 - $35,000
Check rate nowon SLH's secure site
4.99% – 29.99%$10,000 - $35,000Visit FreedomPlus
5.99% – 18.99%*2$5,000 - $50,000Visit Citizens
15.49% – 34.49%$2,000 - $25,000Visit LendingPoint
5.99% – 35.89%$1,000 - $40,000Visit LendingClub
5.49% – 18.24%$5,000 - $75,000Visit Earnest
9.95% – 35.99%$2,000 - $35,000Visit Avant
Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.