How does a share secured loan work?
Monday, March 8th, 2010 at
11:41 am
And would this help build my credit or not? Does it use the money you already have in your share account? If so, is this purely a loan to build up your credit or can you actually get more money than what is in your share account?
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You use your own money and yes you do build up credit…No you cannot use more than what you have in there…this is strictly used to show credit card companies and others who would give credit that you are able to be responsible with your money.
A share secured loan WILL help build credit for you, as it will be reported to the credit bureau(s).
The total amount of money available as a loan to you is based on the amount that you currently keep in your share account and your credit union will “hold” those funds until the balance of the loan is paid in full.
So in short, the purpose is to allow people to build credit and/or repair credit (in a way in which prepaid credit cards DO NOT, because it is a reported “loan”).
The good news is that you will most likely still be able to earn dividends on the funds that are being used as security for the loan. Possibly not more than what you would be paying in interest, depending on the rates at your particular institution, but still better than going to a prepaid visa card situation, as best as I can tell. Plus, a credit union will take this all in to account and if the loan is satisfied within the structure of the loan agreement, then you get the credit boost and the credit union will be more likely to offer you an unsecured loan in the future.
Hope this makes sense! Good Luck!
One of the first steps to building credit is to open a checking and a savings account in your name. You may already have an account, and it is something many lenders will look at, as it show stability. If you only have a checking account, you may also want to open a savings account as well, which can be used as collateral for a secured loan,if necessarycredit, and they accept a large percentage of applicants. However, don’t get more than one card, as its too easy to start running up balances, and it also looks better for your credit if you don’t open a number of accounts in a short period of time.