Whether you’re just starting out or have a history of less-than-perfect credit, you have options. A Pledge Loan could help you build your credit with little risk to you.

Having a lower credit score produces its own piece of irony. When your score is lower, the interest rates you qualify for are higher – which in turns makes paying off the new debt more difficult – and any mistakes you make are more costly.

How you got to this point is not important. Maybe you had a run of bad luck, where paying the bills became a challenge, or you made rash decisions when you were younger and racked up more debt than you could manage on your own. Maybe you had bad financial habits but are trying to improve. What matters now is how you can repair your credit.

A Pledge Loan from Wave is just one example of a product focused on helping those with less-than-perfect credit. As a low-risk option for both consumer and financial institution alike, a Pledge Loan can potentially get you back on track to a better credit score with little stress.

What Is a Pledge Loan?

A Pledge Loan is a type of share secured loan. A share secured loan uses your own savings (your “share” in the credit union) as collateral, which means...

• You’re more likely to be approved for the loan.
• The interest rate will be much lower than that of a personal unsecured loan.
• You know you can afford the loan, because you already have the money.

At Wave Federal Credit Union, a Pledge Loan doesn’t have to use your share savings as collateral – you can also borrow against a certificate (a.k.a. share certificate) or other savings account. The loan functions the same regardless: You receive a low-rate loan, and the savings you’re borrowing against are locked down and unusable until the loan is repaid. At the same time, your savings are still earning dividends because the money is still technically in your account!

How Pledge Loans and Credit Scores Interact

To understand how a Pledge Loan can help, let’s first break down what makes up your credit score. Your credit score is largely based on five categories:

1. Payment History – Do you pay on time and in full?
2. Total Debt – How much debt are you carrying? How close are you to your credit card limits?
3. Length of Credit History – How old is your oldest loan account?
4. New Credit – Have you opened or applied for a loan recently?
5. Credit Mix – Do you have a healthy mix of installment loans vs. lines of credit?

Your payment history has the most impact on your score, but that factor can only be improved over time with consistent effort. This is where the Pledge Loan comes in. With a Pledge Loan, making on-time payments is easier thanks to a strict payment plan and an interest rate that is only 3% more than your deposit account’s rate. As you make your payments, you show lenders that you are capable of meeting deadlines and repaying your loans in full.

As an added benefit, when applying for a Pledge Loan at Wave, the approval process does not include a credit check, which means applying won’t hurt your score further.

When to Consider a Pledge Loan

Everyone’s situation is different, and a Pledge Loan may not be the right tool for you. If you’re already carrying too much debt, for example, or if you’re not prepared to make regular monthly payments for any reason, a Pledge Loan could even do more harm than good.

However, a Pledge Loan may be a useful solution if you are...

• A newer borrower with little to no credit history
• A borrower with poorer credit and a lower amount of current debt
• A borrower who needs to make a large purchase but doesn’t want to deplete their savings account

Whatever your reasons, you may want to talk over your goals and options with a local loan officer or financial advisor.

Pledge Loans: A Step-by-Step

Considering taking advantage of Pledge Loans? Here’s what that process will look like:

1. Apply for a loan – no credit check required – online or in person.
2. Choose which account will be used as collateral (share or certificate).
3. Pick a term that works for you (up to 60 months) and receive your funds. You’ll also choose whether your savings stay locked down for the entire term, or are freed up gradually as you make payments.
4. Start making regular, monthly payments. You may also want to set up autopay to ensure you never miss a deadline.
5. Once your loan is totally paid off, you’ll regain access to your savings that were used as collateral!

When you apply at Wave, you’ll also enjoy a quick turnaround thanks to local decision-making. Your credit union is here for you with great rates and personalized guidance to help you achieve your financial goals.

To learn more about Pledge Loans, visit our Pledge Loans page or give us a call today!