How To Build Credit Using Your Money As Collateral

Don’t need to borrow money-but you need to build your credit?

Stefanie Addis
5 min readMay 27, 2019
Image by Gerd Altmann from Pixabay

So maybe you aren’t in need of a loan for the actual money-because you have done well with saving and having funds available when needed.

But is this also you — You want to improve your credit, but because you don’t need a loan, you’re thinking why bother?

Or, perhaps you’re wondering how to build your credit since you don’t need a loan?

Think about that for a moment.

You don’t wait (or shouldn’t) till the night before a big event to lose 20 pounds do you? No- you should be working on nutrition and fitness for months in advance.

The same goes for your credit- think of it as a muscle . You have to work on it and build it- and that takes time.

GIF via Giphy

You can use your money as security/collateral for a loan, even if you don’t actually need a loan.

Why? Because it will help you build credit.

Your payment history is a huge factor, in fact it’s the factor that has the most impact. By making payments on the loan each month it will help you. Just make sure you always pay on time!

Make sure you continue paying your other loans on time as well, or you won’t see improvements. Think of it as a tool to help you save money in several areas.

Why does my credit score matter if I don’t need a loan?

Your credit score is important for more than just getting a loan!

Sometimes money isn’t the issue, it’s lack of credit that is causing you stress.

Having bad or no credit can hinder you in many other areas. Areas such as:

  • Getting a decent rate on a loan
  • Being approved for an apartment/condo
  • Getting hired at a new job
  • Cell phone contracts
  • Car insurance rates

We all know that paying your bills on time is key. However there are other ways you can help increase/build your credit by using your own money.

If you have some money saved up (you don’t need a lot) then make your money work for you! Below are 3 ways to build up your credit using your own money as collateral.

  • Share Secured Loan
  • CD Secured Loan
  • Secured Credit Card

You will find that most local Credit Unions offer these options. These are loans, so they do get reported to the credit bureaus. This in turn helps to establish and build up your credit score.

The loans may just seem a bit different to you because in these cases you are borrowing against your own money to build credit, versus asking for a loan for money to buy something like furniture or to pay down some debt.

What are these loans and how do they work?

In each case-you are using your own money that you already have. Remember- in this post we are assuming it isn’t money that you are lacking-but credit.

Image by Nattanan Kanchanaprat from Pixabay

Share (Savings) Secured Loan:

You will place your own funds in a savings account and the credit union (or bank)will “freeze” it. That means you cannot withdraw it.

You will then pay a fixed amount to the financial institution each month. As you pay down the balance you will see funds “unfrozen” each month in your savings account.

You still earn interest on the money you placed in your savings account even though it’s frozen. When you are done paying off the loan- the full amount of your frozen money is now completely thawed out and is all yours again.

Credit unions call savings accounts “Share Accounts” because that is your share in the credit union. Credit union members are owners of the credit union and they each have a “share” in it. If you want, you can think of this as a Savings Secured loan, as that may make more sense to you.

CD Secured Loan

You provide your own funds and open a CD just like a regular CD. You still earn the interest each month in your CD as well.

You will make payments to the financial institution each month until the balance is paid off. Generally- the rate of the loan is 2% higher than the rate you are receiving on your CD, versus being based on your credit score itself.

That is great for someone who may have a subpar credit score. In those cases, you will often be looking at double digit rates on unsecured loans- if approved at all. Ouch!

Secured Credit Card

You provide your own funds that are then “frozen” in a special savings account that is used is collateral to give your credit card a limit.

You use your credit card just like you would any regular credit card. The difference is that the limit you are using is from the money you placed in the special savings account.

So, if you want to have a credit card with a $500 limit then you would have to deposit at least $500 of your own money ( sometimes a bit more than the limit is required to be deposited) in a special savings account first. The financial institution will link that savings account to your secured card so you are technically spending your own money each time you use your card.

You pay each month that you hold a balance on your card. Remember, payment history is part of what builds up your credit so you need to use the card.

As your credit score goes up, you may qualify to convert the Secured Card to a Standard Credit Card with the credit union. You would then receive the money you had “frozen” for your card use back.

It’s a win-win!

Start building your credit with your own money

I encourage you to seek out a local credit union in your area. You can find one by clicking here. Most (unless they are very small) offer the same products and services that the bigger banks do; but with better rates on deposits and loans.

Call your credit union first to see if they base a secured loan on your credit- as some may still do so and you could possibly be declined if your credit is extremely low.

Don’t incur higher fees and rates just because your credit score is not strong enough. Try out one of the loans mentioned above so that you can start building up your credit using your own money.


Originally published at on May 27, 2019.



Stefanie Addis

Freelance writer and wooden spoon survivor. Personal finance and wellness blogger at