If you’re trying to build or improve your credit, you may be looking at every financial product available including certificates of deposit (CDs). CDs are often seen as safe, conservative investments, but can they actually help your credit score?
The short answer: a CD by itself does not build credit.
The longer answer: there is a smart workaround that can make your CD useful for credit-building.
Let’s break it down in plain English.
Why a CD Doesn’t Affect Your Credit Score
A certificate of deposit is a savings product, not a borrowing product. When you open a CD, you’re depositing your own money with a bank for a fixed period of time such as 6 months, 1 year, or 5 years in exchange for interest.
Because you’re not borrowing money, there’s nothing for the bank to report to the credit bureaus.
How credit reporting actually works
Your credit report is built from accounts where you owe money, such as:
-
Credit cards
-
Personal loans
-
Auto loans
-
Student loans
Lenders report how much you borrowed and whether you pay on time. Credit bureaus use that information to calculate your credit score.
Since a CD doesn’t involve debt or monthly payments, it simply stays off your credit report.
How a CD Can Be Used to Build Credit
Even though a CD doesn’t help your credit on its own, you can use it as collateral for a loan. This is called a CD-secured loan.
Here’s how it works in real life:
-
You open a CD and deposit money say, $2,000
-
The bank lets you borrow against that CD
-
You make fixed monthly payments on the loan
-
The bank reports those payments to the credit bureaus
As long as you pay on time, your credit history improves.
Why lenders like CD-secured loans
From the bank’s perspective, these loans are very low risk. If you stop paying, they can take the money from your CD to cover the balance. Because of this, banks are more willing to approve borrowers with:
-
No credit history
-
Low credit scores
-
Limited income documentation
Loan Amounts, Terms, and Interest Rates
The exact details vary by bank, but CD-secured loans usually follow a predictable pattern.
How much you can borrow
Most banks allow you to borrow up to the full value of your CD. If your CD has $1,500 in it, your loan limit is often $1,500.
Interest and pricing
The interest rate on the loan is typically tied to the interest rate on your CD. A common structure looks like this:
-
CD earns 2% APY
-
Loan APR = CD rate + 2% to 4%
This makes CD-secured loans cheaper than many unsecured personal loans or starter credit cards.
Repayment period
Your repayment term may:
-
Match the length of the CD, or
-
Be set to a fixed period (such as 12, 24, or 36 months)
Your monthly payment stays the same for the life of the loan, which makes budgeting easier.
How to Apply for a CD-Secured Loan
Most CD-secured loans are offered by local banks and credit unions, not large national banks.
You can usually apply:
-
Online
-
Over the phone
-
In person at a branch
When you apply, you’ll need:
-
Your CD account details
-
The loan amount and term you want
-
Basic personal information
Approval is often fast sometimes within one business day because the loan is backed by your own money.
Keep in mind: some banks only offer CD-secured loans to existing customers.
Is a CD-Secured Loan Worth It?
A CD-secured loan can be a solid credit-building tool, but it’s not risk-free.
Pros
-
Easier approval than traditional loans
-
Lower interest rates
-
On-time payments build credit history
-
Helps establish installment loan experience
Cons
-
Missed payments hurt your credit
-
The bank can take your CD if you default
-
Your money is locked up until the loan is paid off
-
Not ideal if you need emergency access to your savings
If you choose this option, make sure the CD money is truly “extra” savings not money you might need soon.
Other Ways to Build Credit Without Tying Up Your Savings
A CD-secured loan isn’t the only path forward. Many people build credit successfully using other beginner-friendly tools.
1. Pay existing accounts on time
Payment history is the most important factor in your credit score. Even one late payment can cause damage.
2. Keep credit card balances low
Using a small portion of your available credit and paying it off regularly helps your score grow steadily.
3. Become an authorized user
If a trusted family member has a long-standing credit card with perfect payment history, being added as an authorized user can help your credit.
4. Use a secured credit card
With a secured card, you make a refundable cash deposit that becomes your credit limit. Use it lightly and pay it off each month, and many issuers will later upgrade you to an unsecured card.
Final Thoughts
A certificate of deposit is great for saving money, but it doesn’t improve your credit by itself. However, using a CD as collateral for a loan can turn a simple savings tool into a credit-building strategy.
CD-secured loans are generally affordable, easier to qualify for, and effective when used responsibly. Just remember: once your money is locked into the CD and loan, you won’t be able to access it until the loan is fully repaid.
If you’re patient, disciplined, and confident in your budget, this can be a smart stepping stone toward stronger credit.
