If you’ve made mistakes in the past with credit, you may feel the need to boost your credit score. But how can you get approved for a new credit card if your credit score isn’t great?
The answer may be a credit-builder loan or secured credit card. These products look and feel like regular loans and credit cards, except that you hand over money up front in order to access them. In the case of a secured credit card, you’ll pay a collateral that’s the same as your credit limit. You could pay $500 to open your card and be able to spend up to $500 on that card. After about a year, if you’ve proven you can pay on time and respect your credit limit, your bank may graduate you to a normal credit card; you’ll get that initial $500 back.
For a credit-builder loan, you’ll take out a loan, but you won’t receive the money—your lender will instead put it into a CD or other savings vehicle for the duration. You’ll make monthly payments plus an interest fee each month until the loan is paid off. Then, your lender will release the amount of the loan (along with the interest that accrued during that time), and you’ll get that cash.
The downside is that you need cash on hand in order to open one of these accounts. But if you can gather a few hundred bucks and have a year to work on building your credit, one of these options could get you on positive footing with your bank as you prove you’re a reliable customer. Your credit score will reflect your improvement.