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Two Powerful Tools to Rebuild Your Credit Score

Today’s society relies heavily on credit, which makes your credit score a crucial component of your overall financial well-being. Whether making purchases with a credit card, buying a car or home, or pursuing higher education, credit is generally required.

But what if your credit score is less than stellar? Many doors begin to close around you, and the loans you can obtain are often costly.

The greatest challenge with rebuilding your credit score is that it requires credit. And if lenders are not willing to lend you money, it can seem impossible. But don’t lose hope – solutions are available.

How to Rebuild Your Credit
The first thing to know when rebuilding your credit score is that it won’t happen overnight. Much of what lenders look at is how well you manage credit and loans over an extended period.

Secondly, many components make up your score, but the greatest impact comes from the following:

  • Payment History: How often you make on-time payments.
  • Amount of Debt: The total amount of your outstanding loans and credit.
  • Credit Usage: How much of your available credit is being utilized.

There are two credit-rebuilding solutions available that are generally easy to obtain. Both can work wonders when it comes to boosting your score. They are credit rebuilder loans and secured credit cards.

The ideal candidates for these score-boosting tools are:

  • People wanting to rebuild damaged credit scores.
  • Individuals with little to no credit history (e.g., young adults).

What is a Credit Rebuilder Loan?
A credit rebuilder loan is exactly what it sounds like – a tool to rebuild your credit score. While these loans vary somewhat between lenders, credit unions generally use a Share Secured Loan. This type of loan uses your assets (money in savings) to secure a loan for you. It involves minimal risk for the lender, so they’re easy to obtain, and the interest rates are usually relatively low.

How It Works:
An easy way to think of a credit rebuilder loan is like a pretend loan. You’re essentially borrowing your own money from the credit union. Then, you make regular payments over 6 or 12 months. The credit union reports these timely payments to the credit bureaus, and your credit score improves as a result.

The best way to illustrate how they work is through an example.

Loan Amount Interest Rate Term Monthly Payment Interest Paid
$1,000 3.5% APR 12 Months $84.92 $19.06





The amount of your Share Secured Loan is $1,000. The credit union will freeze $1,000 that is in your savings account. You will not be able to access or withdraw these funds. In return, the credit union will give you $1,000.

Then, you will repay the borrowed money ($1,000) over the next 12 months. Each month, you’ll make a payment of $84.92. With each payment you make, the principal amount will become unfrozen in your savings account.

After your final payment, the credit union will have its $1,000 back (plus $19.06 in interest), and you will have access to your original $1,000.

How It Rebuilds Credit:
Payment history plays the most significant role in determining your credit score. At the end of your credit rebuilder loan, you should have 12 on-time payments reported to each of the major credit bureaus – giving your credit score a nice boost.

Since the credit union provides you with the $1,000 to repay the loan, you shouldn’t run into any issues making on-time payments. And the minimal cost of $19.06 in interest is well worth the improvement to your score.

What is a Secured Credit Card?
Secured credit cards function exactly the same as traditional (unsecured) credit cards. The major difference is that secured credit cards require a deposit. These funds are used to repay the balance if the cardholder is unable to make timely payments.

How It Works:
Using a secured credit card to rebuild your credit score is quite easy. First, you’ll be required to deposit or freeze funds in your account equal to the card’s credit limit – for example, $500.

Then, you’ll make small purchases on the card monthly. Ideally, you only make purchases that you can repay immediately. For example, you might use the card to fill your gas tank once a month. By repaying the entire balance before the due date, you’ll avoid any interest charges.

Every time you make an on-time payment, it will be reported by your lender to the credit bureaus – helping to improve your score.

How It Rebuilds Credit:
Secured credit cards give your score a boost in three different ways.

  1. Making on-time monthly payments will improve the payment history portion of your score.
  2. Paying off the entire balance monthly will keep the total amount of your debts low.
  3. Using the card only for small purchases that you can repay in full monthly will keep your credit usage low. Your credit utilization ratio (how much of your available credit you’re using) is calculated by dividing your outstanding debt by your credit limit times 100.

For example, if your credit limit is $500 and the balance on your card is $100, your CUR will be 20%. You should always try to keep this ratio below 30%. Individuals will high credit scores typically have CURs below 7%.

We’re Here to Help!
Rebuilding your credit score can be challenging. But, with effective tools and proper guidance, your score could rebound quicker than you anticipate. If you’re interested in learning more about credit rebuilder loans or secured credit cards, we’re ready to help. Please stop by the Credit Union or call 410-687-5240 to speak with a team member today.


Each individual’s financial situation is unique and readers are encouraged to contact the Credit Union when seeking financial advice on the products and services discussed. This article is for educational purposes only; the authors assume no legal responsibility for the completeness or accuracy of the contents.