topic Re: Secured Loan in Rebuilding Your Credit

Secured Loan

cam2103 — Thu, 15 Nov 2012 00:30:28 GMT

Hello All,

Found a Credit Union with several products to help with credit restoration.

I've got a secured Visa through them (they don't report it as secured:) and they also do secured loans through a CD. What I'm wondering is a $5k loan better than a $1k loan as far as improving credit or is it mainly payment history?

Thanks in advance.

Re: Secured Loan

ccnewcc — Thu, 15 Nov 2012 00:37:17 GMT

Not sure.

But I wouldn't recommend a secured loan. Seems a bit odd to pay for your own money. Akin to paying some guy to "improve" your Credit Score, but when all is said and done, your got a point or two improvement and out of pocket way more money and time than it was worth.

Re: Secured Loan

cam2103 — Thu, 15 Nov 2012 01:22:06 GMT

The rational behind the secured loan is the same as a secured credit card. My understanding is payment history is crucial to rebuilding credit.

The way it works is you give the credit union lets say, $1,000 then they hand it back to you and you make payments to equal $1,000 plus a bit of interest. At the end of the term you get $1,000 back. The credit union makes some money on the interest and you are able to show positive payment history.

This "loan" would be in addition to a secured card through the credit union and a Capitol One unsecured card. With three positive trade lines and positive payment history I expect to see some significant movement regarding my "credit worthiness".

So, I'm still wondering if a higher "loan" amount would be more helpful.

Re: Secured Loan

Shogun — Thu, 15 Nov 2012 01:34:13 GMT

FICO scores don't really factor in amounts. They just look for on time payments, or adhering to the payment agreement.

Re: Secured Loan

sphinx313 — Thu, 15 Nov 2012 01:35:40 GMT

I believe the payment history would be better as far as an automatic pull would be concerned, but obviously a higher balance loan=more trust from a manual review in regards to other types of loans. If you currently do not have an installment account and you don't believe you could acquire a decent one with your current scores, I would do it. Yes, paying money for your own money doesn't sound appealing...but that's where we are now. As long as the interest is acceptable, go for it!

Re: Secured Loan

ccnewcc — Thu, 15 Nov 2012 01:38:15 GMT

I'm not a fan of getting credit in the hopes that it will improve credit scores. I am a fan, however, of getting credit that is needed (the ability of float purchases for 30 days, needing a 5k loan for home repairs) and that will, in addition to the need, help credit.

Secured Credit Cards are one thing. Secured loans are something entirely different and something that I would never do nor recommend.

My adivce would be stay with your two secured CCs. Maybe try for a 3rd cc -- an UNsecured CC, perhaps?

Re: Secured Loan

cam2103 — Thu, 15 Nov 2012 01:39:05 GMT

Shogun wrote:
FICO scores don't really factor in amounts. They just look for on time payments, or adhering to the payment agreement.

Thanks!

Re: Secured Loan

KatrinaE — Thu, 15 Nov 2012 01:39:26 GMT

Yes the higher the loan the better - shows someone took that much of a "risk" on you. The higher the credit available to you - your secured and unsecured credit lines - the better. You may want to consider taking that money and upping your credit line instead it may give you better bang for your buck. There are others here who know better on the Mix factor than I do. But I'd try to get between $3,000-5,000 on that credit line before opening a TL.

Re: Secured Loan

cam2103 — Thu, 15 Nov 2012 01:43:28 GMT

Generic wrote:
I'm not a fan of getting credit in the hopes that it will improve credit scores. I am a fan, however, of getting credit that is needed (the ability of float purchases for 30 days, needing a K loan for home repairs) and that will, in addition to the need, help credit.

Secured Credit Cards are one thing. Secured loans are something entirely different and something that I would never do nor recommend.

My advice would be stay with your two secured CCs. Maybe try for a 3rd cc -- an UNsecured CC, perhaps?

Hey CC,

Could you elaborate on the above? Is'nt a secured credit card a secured loan?

Re: Secured Loan

cam2103 — Thu, 15 Nov 2012 01:46:12 GMT

KatrinaE wrote:
Yes the higher the loan the better - shows someone took that much of a "risk" on you. The higher the credit available to you - your secured and unsecured credit lines - the better. You may want to consider taking that money and upping your credit line instead it may give you better bang for your buck. There are others here who know better on the Mix factor than I do. But I'd try to get between $3,000-5,000 on that credit line before opening a TL.

You mean increasing the secured card credit limit would be more beneficial than the same money used in an unsecured loan?

Re: Secured Loan

ccnewcc — Thu, 15 Nov 2012 01:52:22 GMT

cam2103 wrote:
Generic wrote:
I'm not a fan of getting credit in the hopes that it will improve credit scores. I am a fan, however, of getting credit that is needed (the ability of float purchases for 30 days, needing a K loan for home repairs) and that will, in addition to the need, help credit.

Secured Credit Cards are one thing. Secured loans are something entirely different and something that I would never do nor recommend.

My advice would be stay with your two secured CCs. Maybe try for a 3rd cc -- an UNsecured CC, perhaps?

Hey CC,

Could you elaborate on the above? Is'nt a secured credit card a secured loan?

No, it isn't.

Secured CCs are revolving accounts, and Secured Loans are installments.

Secured CCs can offer rewards. Secured loans, at best, offer offer componding interest.

Secrured CCs can have a CL that you can max out on every month (not advisable tho) and can be Increased in CL, whereas Secured loans are a set amount of borrowed dollars.

Re: Secured Loan

cam2103 — Thu, 15 Nov 2012 01:59:05 GMT

ccnewcc wrote:
cam2103 wrote:
Generic wrote:
I'm not a fan of getting credit in the hopes that it will improve credit scores. I am a fan, however, of getting credit that is needed (the ability of float purchases for 30 days, needing a K loan for home repairs) and that will, in addition to the need, help credit.

Secured Credit Cards are one thing. Secured loans are something entirely different and something that I would never do nor recommend.

My advice would be stay with your two secured CCs. Maybe try for a 3rd cc -- an UNsecured CC, perhaps?

Hey CC,

Could you elaborate on the above? Isn't a secured credit card a secured loan?

No, it isn't.

Secured CCs are revolving accounts, and Secured Loans are installments.

Secured CCs can offer rewards. Secured loans, at best, offer offer compounding interest.

Secured CCs can have a CL that you can max out on every month (not advisable tho) and can be Increased in CL, whereas Secured loans are a set amount of borrowed dollars.

Thanks for the clarification. So, in your opnion I would be better served by increasing the credit limit on my secured card with the cash I was going to use for the secured loan?

Re: Secured Loan

sphinx313 — Thu, 15 Nov 2012 02:03:01 GMT

Possibly....or maybe a 70/30 split. Increasing your secured card credit limit would increase your available credit and decrease your utilization. The installment account (secured loan) will add a necessary account to your credit portfolio while you're in the growth stages.

Re: Secured Loan

webhopper — Thu, 15 Nov 2012 02:08:36 GMT

I personally like secured loans... I had one from chase bank in 2007 and I feel that it really helped. For one thing I saved 1k over the course of a year. On the other hand I improved my credit mix. Keep in mind that once the loan is funded you get your deposit back immediately as the loan funds and then you get the full asset back when the loan is paid. Also it only cost me $17 for 12 months of installment history. Secured cards and subprime cards have higher fees than that

I would definately do a 1k loan and then when the loan funds; use the funds to increase deposit on the secured card... then start paying off the loan and 12 months later you have a 1k CD

Re: Secured Loan

ccnewcc — Thu, 15 Nov 2012 02:06:38 GMT

cam2103 wrote:
Thanks for the clarification. So, in your opnion I would be better served by increasing the credit limit on my secured card with the cash I was going to use for the secured loan?

I think that is a better option than getting a secured loan.

And perhaps looking into an unsecured CC.

I would like to add tho, rebuilding can take time. Some ppl rush into getting CCs and loans and what not thinking it will help only to find out later down the road that only modest increases to the credit score happened.

Always research the options that are out there, get credit that is needed--not wanted, and have patience.

Re: Secured Loan

webhopper — Thu, 15 Nov 2012 02:13:09 GMT

http://www.ehow.com/how-does_5718656_do-certificate-secured-loans-work_.html Here is a good explanation

Re: Secured Loan

Jutz — Thu, 15 Nov 2012 02:25:47 GMT

webhopper wrote:
I personally like secured loans... I had one from chase bank in 2007 and I feel that it really helped. For one thing I saved 1k over the course of a year. On the other hand I improved my credit mix. Keep in mind that once the loan is funded you get your deposit back immediately as the loan funds and then you get the full asset back when the loan is paid. Also it only cost me $17 for 12 months of installment history. Secured cards and subprime cards have higher fees than that
I would definately do a 1k loan and then when the loan funds; use the funds to increase deposit on the secured card... then start paying off the loan and 12 months later you have a 1k CD

Savings, credit history, and credit mix

Re: Secured Loan

scarrollprint — Thu, 15 Nov 2012 12:47:27 GMT

Aren't CD backed loans a lowe where they don't give you a penny, but rather open up a cd in your name and then you pay for it in monthly installments. When the term is up the bank keeps the interest and you can cash out the CD (or roll it over if you want to make money off of it).

If this is the type of loan your looking at, I see no issue with it as really all it is, is a glorified savings account that gets no interest but rather helps build credit. It costs nothing (a cap 1 credit card will cost at least 20$ in an AF if not closer to 40).

the banks like them because they are getting loaned free money that they don't need to pay interest on, butt rather can invest it to gain some.