First Steps

Are you eligible for membership in a credit union?

 

I'd opt for the authorized user route if at all possible. If you have to go for the secured approach, go with National City or any entity which may graduate you after a presribed time limit.

 

To add to Lisa's reply, the easiest way to go the authorized user route is to ask a friend or relative to add you to their accounts. Please be advised that you want aged accounts, the older the better, with perfect payment history and low utilization.

This gives you the benefit of adding positive history to your credit report and negates the hits that inquiries and new accounts cause FICO scores.

If a friend or relative is not a viable option, there are companies which offer tradelines as a service. Be wary of them, check them out with the applicable licensing authorities, BBB, and shop around. In my opinion, 1k for a tradeline is far too much. There are companies which offer these services for half that.

 

Authorized user can be dangerous for both.

The idea of getting someone with excellent credit to let you be an authorized user on their cards is very dangerous indeed.

If any misfortune befalls them such as death, severe injury, serious health problems or an unexpected layoff you can become liable for their defaults and if you can't pay off all that they owe then you could even be next in line for the almost inevitable lawsuits, judgments, garnishment and the whole works.

It can also be dangerous for them if you charge things on the card and can't pay up for whatever reason. If you fail to pay up then they become liable for paying what you charged as well as what they charged.

It also works like becoming a co-signer on a car loan or a mortgage for another person. The credit for the payments actually goes to the co-signer with the good credit rather than the person who actually made the payments. You might get some credit out of it but not nearly as much as the co-signer does. Co-signers on a note or mortgage or loan only help secure the lenders interest but don't do much for the credit of the person who actually bought the merchandise.

There is an old trick that has been around forever and is well publicized on the internet. My understanding is that this trick was first published in Popular Mechanics about 60 or 70 years ago and later was published in other places as well. Then it was nearly forgotten about for a lot of years but has seen some publicity on the net the last few years.

It works this way.

Go to a bank and open a savings account for at least $500. Then immediately go see the loan officer and take out a secured loan using the passbook as security. Take out a 1 year loan no matter how much "seed money" you deposited.

Immediately go to another bank and do the same thing using the money you "borrowed" at the first bank to open the second savings account.

Immediately go to a 3rd bank and do the same thing using the money you borrowed at the second bank.

Then open a savings account in a 4th bank but don't ask for a loan. Deposit the money you got from the 3rd bank to do that with.

Some banks won't loan 100% back. Some might only loan something like 90% so you might need a bit of extra cash over and above the initial amount to keep all three at the same level whatever that might be.

Now you have 3 secured bank loans.

At the end of a week go to Bank #4 and draw out enough to make a payment to each of the other 3. Do that each week for 3 weeks and now you are out of money in Bank 4 so after you make your 3rd payment ask each bank to release an amount equal to the 3 payments you made in the 3 weeks. They will do that. They have no reason to hold that money.

Put the money you got from the 3 banks back into the savings account in Bank 4 and keep the weekly payments going until you have made all 12 payments in 12 weeks instead of 12 months.

You will have incurred interest on all 3 loans but that isn't likely to amount to much. Since you are working with secured loans their risk is almost zero so you should get a very low rate, maybe as low as 5 or 6 percent or so. You will also be earning a very small bit of interest from Bank 4 as well as from the 3 original accounts so that will help offset the interest you have to pay by a little bit.

12 weeks worth of interest on your loans won't amount to much even at outrageous interest rates as high as 15 or 20 percent At the very worst the whole thing might cost you maybe $100 but more likely it will come out to be $20 or less.

No matter what the interest rates, deductions and whatever else, the entire project should require less than about $100 over the 12 weeks and you have the 12 weeks to earn most of that.

Some banks will want to check your credit and others won't. If they want to check your credit you might want to pass and go somewhere else. You could even tell them up front that you have terrible credit and want to improve it some and that is why you are doing what you are doing. Most bankers already know about this and have no problems with it. They make a few bucks in the process over the life of the 12 month loan. What you don't tell them is that you plan to pay it all off in 12 weeks because if you did that they wouldn't give you the loan because there wouldn't be enough profit in it for them to mess with it.

That is far better than trying the authorized user or cosigner routes.

 

Credit unions have traditionally been open to consumers who are in some class with some common connection, such as the same employer, but the current rules are often fairly broad.

For example, a given credit union might be open to any employee of several companies in an area. Some are open to current or ex-armed forces members. Some define their potential membership as any resident of some region, such as a county or group of counties.

See what credit unions are in your area, and ask.

 

The one problem that you may have when you have had a third-party involved, is that you may get a number of disputes returned with a frivolous "PREVIOUSLY INVESTIGATED" if the third-party disputed the account before... The more times the account has been disputed, the higher the chances of it getting flagged as frivolous.

 

There is no repayment liability for an authorized user regardless of the circumstances you outlined above. The primary account holder, or their estate, is the obligated party.

If in the event the primary account holder for some reason causes the account to be reported adversely, the authorized user needs merely to dispute it through the credit reporting agencies and it will be deleted.

The secured route you suggest, while effective in part, does little by the way of account history. In fact, FICO scores will marginally dip until the account reaches a certain age. Unfortunately, the method above requires account closure at some point and thus, negates any "open" tradelines which account for some points as well.

With the authorized user option, the AU gains both history and useage while avoiding any ding due to a new account being opened.

The above are general rules and not applicable in all situation mind you.

The "secured"

 

Well taken

Your comments about my comments are well taken. As far as credit repair or credit scores are concerned, again you may be very correct. I don't claim to know very much about that sort of thing. Mostly just what I have picked up here and there and that isn't much.

The method I outlined above is also one I picked up somewhere but have never had any need to try on my own.

I do know a couple of people who tried it and it did work for them quite well. One only used $300 and the other one used a much larger sum of money. Both of them had to go back to one or more banks and request that they report the account to the credit bureaus and I guess they got the benefit that way.

I do agree that the result would temporarily dip their credit scores because it would increase their overall indebtedness for the 12 weeks and it would show up as new debt so you are also correct on that count.

Like anything else there are pro and con sides of the issue.

 

Well, the method you discribed does indeed work, thus, lets not throw it in the trash. It takes a bit longer but, that's not too say that it is of no benefit.

I suppose that if one would utilize both the methods that were suggested in this thread, they may perhaps get a slightly better result in the long run than using only one. It would be on a case by case basis I am sure.

In any event, the more ideas shared the better I always say.