Building Credit? Use a CD Secured Loan!

I found a great tool for building up your credit history and score. Some banks and credit unions offer a loan where you put money, say $1,000, into a CD. The term of the CD matches the term of the loan and the loan is secured with that CD. You make payments (on time, obviously) and they report the good credit activity to the credit bureaus.

The best deal I found is that a local credit union will charge you 3% above the interest rate on the CD. This is not a bad deal for building credit. You simply make the payments on time and you get the money back from your CD plus interest. 3% of a loan for $1000 for 1 year is $30. You are essentially paying them to give you a good credit history.

This is a great way to start to build credit history if you have none or to rebuild credit history after a rough patch. I personally suggest doing it one loan at a time with different institutions so you will have multiple on file. You can go back to these lenders later since you have a history with them if you need an actual loan that is not secured.

This is a better solution that credit cards since it is an installment loan. Credit cards are also good for providing history but they can be more difficult to get for some people. The lender has nothing to lose since it is secured with real money. It is a win-win for both parties.