LOS ANGELES, July 22, 2021 (Newswire.com) - Building credit when you have a low credit score may seem like an impossible task. Luckily, there are many ways you can improve your credit score, from making credit card payments on time and keeping spending to a minimum to taking out a secured loan.
A secured loan can be easier to get approved for than other loans because you're guaranteeing loan repayment by offering collateral, like hard assets or savings. The asset you provide is equal in value to the loan amount, so the lender takes on minimal risk when approving you for the loan. Let's dive deeper into what secured loans are and how they can rebuild your credit.
What is a Secured Loan?
A secured loan is a loan that is secured by an asset you'll provide as collateral. The most common types of secured loans are mortgages and car loans, which involve using your house and car as collateral, respectively. Another type of secured loan is a credit-builder loan using money in your savings account as collateral. After depositing the money in the bank, you'll take out the loan and the bank will put a hold on your money until you pay the loan back in full.
Choosing the Right Secured Loan
There are many different types of secured loans out there, so shop around before applying for one. Make sure the loan you're applying for has an affordable repayment schedule and works for your financial needs. Remember that since you'll be using collateral to secure the loan, you'll need to pay the loan back completely in order to keep your asset.
You can easily apply for a secured loan online, but make sure you choose a credible organization that you recognize. Search for online reviews about the lender, and check with the Better Business Bureau to make sure it's legitimate.
The Credit Rebuilding Process
Credit scores are calculated using several different factors like your payment history, credit utilization, and total available credit. With a secured loan, making on-time payments may help increase your score if your on-time monthly payments are reported to the credit bureaus. The loan itself increases your total available credit.
Your credit utilization, which is the percentage of your overall credit that you've used, will go down as you make payments on your loan. You'll see a significant jump in your credit score when it gets under 50%. Paying the loan off will also give your credit score a boost. Check your credit score regularly and you'll begin to see the number gradually climb, provided you don't have any credit utilization, late payments or defaults elsewhere.
Paying Off Your Secured Loan
If you have a low credit score and need funds to cover expenses quickly, a secured loan could be the right solution for you. It allows you to build your credit and there's minimal risk involved for the lender. Apply for a small loan to start, make your payments on time, and you'll start to see progress.
Notice: Information provided in this article is for information purposes only. Consult your financial advisor about your financial circumstances.
Source: iQuanti, Inc.