How to Use Share Secured Loans to Build Credit History

Good Credit Matters for Buying a Home and Other Financial Goals

Stacks of coins with alphabet blocks on top spelling out the word "loan."

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A share secured loan is a way to begin building credit, even if you're starting from scratch. If you're hoping to build credit so you can get a car loan or someday buy a home, here's what you need to know about getting a share secured loan.

Your credit rating is one of the most important measures of your financial health. A good credit score signals to lenders that you're financially responsible and it can make getting approved for loans or credit cards easier. Not only that, but good credit can help you secure the best interest rates when you borrow.

If you're new to using credit, however, you may have a thin credit file or no credit history at all. An estimated 62 million Americans have a thin credit file, meaning they don't have enough information on their credit reports to generate a credit score. Fortunately, there's something you can do about it.

What Is a Share Secured Loan?

Some loans are unsecured, meaning you don't need any collateral to get one. A share secured loan is a type of loan that's secured by your savings account, money market account, or share certificate account.

These loans can be offered by banks or credit unions. A share secured loan typically comes with a better interest rate than other types of loans designed for people with no credit because you're offering your savings as collateral. That doesn't mean you lose your savings, however.

When you get financing with such a loan, you borrow a set amount of money. That same amount is taken from your savings and held by the bank or credit union. Once you repay the loan, the bank releases the hold on your savings. In the meantime, your savings continue to earn interest, which can offset the interest rate you may be paying for the loan.


The main benefit of a share secured loan is that you can use it to build your credit history. The largest share of your credit score is your payment history. By making your loan payments on time, you create a positive payment history that is factored into your credit score calculations.

That's not the only benefit, however. Compared to other types of bank loans and loans offered by online lenders, this credit may be easier to qualify for. As these loans are designed for people with little to no credit history, banks and credit unions may be more willing to give you a loan if you have sufficient savings to offer as collateral and you've been a good banking customer.

Share secured loans also offer flexibility, in that you can use the proceeds of the loan for different purposes. For example, you may use your loan to make a car repair or buy new furniture. There are generally no restrictions on what you can do with the funds.

The interest rates on these loans are another attractive feature. Whereas you might pay a double-digit interest rate on unsecured personal loans (use our payment calculator below to see if this option is right for you), share secured loans can have rates as low as 1% to 3%. Payments can also be tailored to fit your budget so borrowing won't create an undue financial burden as you work on building credit.


One of the biggest potential disadvantages of share secured loans is that these tend to be smaller loans. Banks and credit unions typically limit how much of your savings you can offer as collateral, which limits how much you can borrow.

But, that may be a good thing if it keeps you from racking up more debt than you can afford to repay. And if you're brand-new to using credit, it's a good way to learn the basics of making payments and tracking your loan balance over time.

The other downside is that if you don't repay your loan for any reason, the bank can keep part or all of your savings to compensate for any remaining balance you owe. This can make a share secured loan riskier than an unsecured loan. But, if you're committed to building good credit and making payments on time, that's a minimal concern.

Compare Share Secured Loan Options Carefully

If you're interested in using a share secured loan to build credit, take time to do some comparison shopping. Check out what different banks and credit unions offer in terms of borrowing limits, repayment terms, interest rates, and fees. Ideally, you should choose one that offers a long enough repayment window to allow you to establish a positive payment history while paying the least amount of interest possible.

Remember also that if you're looking for a loan from a credit union, you may have to meet certain requirements to join the credit union before you can apply if you're not already a member.