I was given this from a friend.... its something that i am going to start doing in the next week or two. I think its worth it. if anyone has tried it please post your success and failures. ***************************************** Laying the Groundwork The first objective after removing negative credit from your credit report is to add positives. This can be achieved by obtaining three bank loans to serve as credit references for future maneuvers. Have you ever noticed that most loan applications require three credit references? Follow this first step and you will have three impeccable references to use for various kinds of credit and loan needs. This step requires some up-front capital to get you going. The results can be achieved using anywhere from $300 and up, although we recommend investing $1,000. Take heart - the money will not be spent, but is used as secure backing in a savings account until the plan is completed. If you need to raise the cash, you can do so through creative means such as a temporary, part-time job or a garage sale. You can also consider borrowing the money because, again, it will not be spent. Just be careful not to start off with funds that you may be likely to need in the weeks to follow. Withdrawing this money before the plan is completed would jeopardize your credit and potentially leave you in greater debt. LOCATING THE RIGHT LENDERS Now you are ready to locate your three lending institutions, which can be banks, savings and loans, or credit unions. You can use the bank where you currently have your checking or savings account, although you will still be opening a new savings account. Use your local Yellow Pages to call area banks and ask these questions: What is the minimum amount they will loan on a passbook savings account? What is the percent you can borrow? For these purposes, you are interested in opening only a regular passbook savings account, so don't get more details than you need about other types of special account and offers. Choose a lender that offers high yields and allows you to borrow as much as possible against a secured account. We will now label the banks you have selected Bank A, Bank B, and Bank C. DEPOSIT, BORROW, AND PROSPER! Go to Bank A and open a savings account with your $1,000 (or whatever amount you have allocated). This should be an interest-bearing account earning the highest rate you can find. Take your passbook home and wait three days. Return to Bank A (dressed and poised for success) and ask to see a loan officer. Take your passbook with you, and explain to the officer that you wish to take out a loan, for which you are willing to place your savings account as collateral. This is the easiest type of loan to obtain because it is completely secured with cash. Be prepared to name a reason for the loan, although it should be granted regardless of the purpose because it will be backed by your savings account. Make sure you obtain an installment loan, amortized over one year with monthly payments required. Remember, you are building credit, so a loan that is due all in one lump sum at the end of 180 or 365 days will not serve your purpose. While a credit check is not always make for this type of loan, be prepared to acknowledge any bad marks on your credit record and explain that you are trying to re-establish your credit. Assure him/her that you will faithfully make your loan payments. Assume you get a loan for 90% - or $900 - of your savings account, with a 6% interest rate. On a $900 loan you would pay $29.52, owing the bank a total amount over one year of $929.52. Your monthly payments will be $77.46. Once this loan is made, Bank A will freeze your $1,000 so your loan collateral cannot be withdrawn. However, each time you make a payment on your loan, an equal amount (less interest) will be unfrozen in your account and available for withdrawal. Take your loan check for $900 to Bank B and open another savings account with this amount. Wait three days, and get your second loan - this time for $810 (90% of $900). Your monthly payments here will be $69.71. (Again, assuming 6% interest) Now use your $810 and open an account at Bank C. Wait three days, and obtain a 90% loan for $729, with monthly payments due of $62.74. EXAMPLE Bank Savings Balance Loan Amount Payment Amount Total Interest Paid Bank "A" $1,000.00 $900.00 $77.49 $29.52 Bank "B" $900.00 $810.00 $69.71 $29.57 Bank "C" $810.00 $729.00 $62.74 $23.91 DON'T PANIC! By the time you obtain your third loan, about two weeks have passed. You now have three bank loans totaling $2,439 and $729 in cash (your loan from Bank C). How will you pay these loans back? It's easy. Use enough of your $729 to make your first payment on your Bank A loan ($77.46). Do the same at Bank B and Bank C. You should now have made payments that are ahead of their due dates by about one week at Bank A, two weeks at Bank B, and three weeks at Bank C. You have used about $200 of your $729, but you have also freed up frozen funds that can be withdrawn later. Now wait about another two weeks and repeat the loan payment process described above, making another set of payments with your remaining cash. At this point, you should be approximately one full month ahead on all three loans. With the balance left from your cash loan, make your third set of payments on the second payments' due date. By now, your $729 should be almost depleted. Approach each bank and withdraw the funds that have been unfrozen to use towards your next set of payments. Continue this process until at least six payments have been made on each loan. You can pay off your loan in full, if you wish, after that point. Do not pay them off before six months, because this is the time frame usually considered when a payment history is calculated as a possible credit reference. WHAT DID THIS REALLY COST? In our example, the interest rate charged on the loans was 6%. And, your savings accounts were drawing 2% interest, making your net interest only 4% (6%-2%). We will assume the loans where for one year (12 months) and that you did not pay them off early. Bank loan A for $900 charged $29.52 interest, from which we subtracted $20.18 - the 2% interest you gained from your $1,000 savings - for an actual annual cost of $9.34. If you paid off your loan in six month, it would have cost you even less! Overall, it costs pennies to re-establish your credit using this method! That's a very small amount to pay for three fast and easy credit references that indicate your ability to acquire bank loans in varying sizes, make you payments ahead of schedule, and pay the loans off completely before due. These activities will all look very impressive on your new credit report! And, you should still have your original $1,000. Now is a good time to contact your local credit bureau (ask your banks which one they report to) and have this new credit information added to your profile. The bureaus will send you a credit addition form to complete and mail back. There is usually a small fee for each item to be added. They should also send you an updated copy of your new credit report. psugirl
I used that one a few years ago, back in 1975 or 1976. It can and did help build credit and do it quickly. I also posted that trick on this forum at least twice before and maybe more. And as you say, the larger the amount, the better. What's more, I think that even if one is well along in their credit building process, say at the point where they want to go from the subprimes to the majors, it might be a good trick to pull if one could come up with at least a grand or more to use as seed money. You also have the option of paying a payment a week, thereby cutting down on the interest charges you will have to pay or take your interest lumps and spread it out over the full length of the loan, thereby establishing the credit lines with a solid fairly long term record of paying on time. It's a good trick and it can do wonders for your credit even though it's a "cheap" trick.
I even happened to find a bank where you do not have to use any up front capital. It uses the loan proceeds to secure the loan and is specifically intended to re-build credit. We just closed on this loan last weekend and I am about ready to make the first payment (a month ahead of schedule). We took the loan out for the max time, but do not intend to keep it longer than a year. The bank put the proceeds into a CD which pays a higher rate than the passbook. The only drawback is that the CD is locked for the term so none of it beomes unfrozen as payments are made, but for us that is okay. I also kind of call it a forced savings account. So if you don't have the capital up front, check around and see if any local banks offer this type of loan.
I, too, am currently using this method to rebuild my credit. Using cash from a salary bonus, I opened up a savings secured loan with my credit union. I then took the loan proceeds (my own money, of course), and then opened a second share loan in an amount just less than the amount of the first loan. I then did this two more times with this same credit union, thus ending up with four loans of differing amounts. With the proceeds from the last loan, I went to a different credit union and opened two more secured loans. This leaves me with seven new loans, all reporting positively on all of the bureaus. None of the loans required credit inquiries, as they are fully secured loans. The loan amounts are from $500 to $5000, and all have terms of 12 months. On all of the loans, I have the payments transferrred automatically from my savings account five days before the due date. The loans are thus "self-paying", and I don't have to worry about ever being late. Each payment is made "frees up" an equivalent amount in my savings account. For those of you who are considering doing this, check with your local credit union. The loans are easy to get - basically no qualifying other than having the initial cash for the savings account. And the rates are usually between 6 and 7%, which is offset by the rate the credit union is paying you on the savings account. In my case, the most I am paying in net interest for the loan is 3%, and most of them are at 2%. A totally reasonable price to pay for the positive items that will be added to your reports.
ok, what credit unions are you guys using? Additionally, what checks did they do? Credit, employment? And do they report to all 3 bureaus? My brother was going to get a federal credit union loan but they only report to Equifax... so he opted for a bank loan.
Marie... I spoke with my bank (Sovereign) today and they said I can secure a $1000 loan with a $1000 CD. She told me they will do it. Buying a CD when I get paid at end of the month! Regards, Tom
I did this with a one $1,000 secured credit union loan for a 1 year term. It looks great on my 3 credit reports. As that particular credit union does a hard inquiry on EX, my request was a dual one. I also asked for and received a credit card at the same time. I got the installment loan and a credit card with one (1) inquiry. BTW, I was a member of the credit union for many years so despite my rotten credit at the time, they did work with me. However, I can't emphasize this to strongly. Remember that most banks and CU's are going to do a hard inquiry on your credit for the 3 loans. So be sure and verify 3 things before you make the commitment: 1. Is a hard inquiry going to be done? 2. How many ( if any) of the CRA's do the lenders report to? 3. Can you stand 3 potential inquiries at one time? One more thing, someone on the board along time ago wrote that 9 out of 12 payments were required to be made in order to obtain "I1" status. Because of the uncertainty on this part of the issue, I would just make all the payments and not try to pay anything off early. This is just an opinion. PSUgirl has some very good thoughts here.
----------------------------------------------------- 1. Is a hard inquiry going to be done? ------------------------------------------------------- IF A HARD INQUIRY...THEN DON'T DO IT!!!! THIS IS A 100% SECURED LOAN WITH THE CD AS COLLATERAL...AN INQUIRY???? GET A CLUE!!!! 100% SECURED=100% GUARANTEED APPROVAL...NO INQUIRY SHOULD EVEN BE EVEN CONSIDERED!!!!
Jim, your comments are definitely well taken. When I was originally shopping around for secured loans with the credit unions, besides the usual stuff, I always asked three critical questions: (1) is there a credit inquiry involved, (2) will the loan history be regularly reported to all three CRAs, and (3) will the available balance in my savings account increase (or the hold on the funds be released) as I make the loan payments. Unless the answers to those questions were no, yes, and yes, respectively, I looked elsewhere for a loan. And with regard to the length of the loan and getting the "I-1" rating, all of my loans are set up for 12 month repayment terms so that I will be assured this is the rating I get once the loans are paid off. I will not pay off any of the accounts early, but exactly as scheduled. For those who are interested, the names of the credit unions where I have established my secured loans are "Golden One Credit Union" (www.goldenone.com) and "Heritage Community Credit Union" (www.heritageccu.com). These are both located in Northern California. I also know of about five more Northern California credit unions that make acceptable share loans that fit the above criteria. If anyone wants more info, please post your address and I will email you directly. Oh, and Jim, I also did what you said you did - at the time I took out my share loans from the two credit unions, I also obtained secured Visa cards from them. Fortunately for me, I did not have ANY inquiries made in connection with either my loans or Visa cards. I'm sorry you ended up with a hard inquiry...
GEORGE, If only life was this simple!!!! Always, Always ask about all the terms and conditions regarding any business transaction. One of the most excellent writers here on the board ( not me) was assured that there would be no hard inquiry when he made a secured CU loan specifically to build credit history. The CU did it anyway. This gentleman last reported that he was getting the inquiry deleted with the help of the CU credit manager. Always, Always -ask!
Chriscraft, I like your third question (do the funds unfreeze or add up)....i think its important to ask that question, and thank you for mentioning it. In order for the pocesses that i described above to work, you have to have the funds released. But, i think your questions as well as jims are important to know. the answers could make or break the credit building strategy! psugirl
PSUgirl, thanks for the nice comment. You are absolutely right - it is important that the funds be "unfrozen" as you make your loan payments. That is especially true in my case, where I obtained a number of relatively high amount loans. Obviously, I am able to service all of the loans even if they don't release the funds as I make payments, but it sure is a lot easier to let the loans "service themselves" and not have to come out of pocket to do so. If you - or anyone else- have any questions on this topic, please let me know, I'd be glad to help. I spent a lot of time researching and making telephone calls before getting involved in this repair tactic. I can't wait to see my credit score in 12 months (well, actually 11 now, since I took my loans out a month ago) to see how the tactic actually works.
Thanks chriscraft. I knew that I was getting one hard inquiry for the 2 loans. That was fine by me at the time. Also, the sweet girl at the CU showed me my 641 Experian score when she ran my credit so it worked out well for me. Otherwise, I would never have known that my EX score had risen from 530 to 641 in 14 months after a BK discharge. What an education. LOL
Thats great! Im going to start researching the banks this friday and saturday. Ill post any questions that i get stumped with! Im ready to strengthen my credit with this process! psugirl
Jim, I am glad you knew the hard inquiry was coming. In my case, since I was doing multiple loans and a credit card at the same credit union, I would have probably even applied for the loans and the card even if it would have generated a hard inquiry. In that case, I would have been getting 6 new accounts (5 secured loans and one secured Visa), at the cost of only one hard inquiry. It would have been worth it. But, as I said, I was lucky and found two credit unions who understand that inquiries for secured loans are unnecessary and damaging to their customers, and I have gotten all of the loans and the cards without one single inquiry. And like I said, I have found a number of other local (Northern California) credit unions who will loan on the basis I stated in my earlier post. (But, I also found an equal number who require inquiries, require true credit "approval", etc., which to me is ridiculous given that the loans are fully secured.) Anyways, I think this is a terrific way to build credit. For me, it is one of the three "prongs" of successful credit repair/enhancement: (1) dispute, dispute, dispute the negatives (never say die!!!), (2) sensibly open an appropriate number and type of credit accounts while the dispute cycle is in process in order to generate some positives in your reports, and (3) pay all of your bills on time.
I just joined a credit union yesterday. They will run an inquiry, but the report is good for any and all loans made within 60 day period after the inquiry is done. They pull TU and will give you a copy of the report. So as much as inquiries are damaging, to get the results of improved credit and establishing yourself with a bank or CU for future loans may be well worth it. I do agree, it is very important that you ask if these loans will be reported to the CRA's otherwise all this work does you no good.
I started calling Atlanta banks today about doing this. I was planning on doing it next year but I've decided to step up the timeline. I'm getting a lot of banks that would prefer a CD versus a savings account. Ugh. That would tie up funds. 2-3% over the cd rate is the norm. All want to pull at least 1 report, and 1 bank wanted all 3 and they would only do 90% of the cd. Oh, I was told that the banks would do loans based on the inquiry for 30-60 days. So if I want more than 1 installment loan the inquiry would be good for a window of time. I may do 2 back to back for good measure I was told something interesting by the branch manager. She said that it seems to her that high installment balances don't really hurt the scores as much as high revolving balances (as it relates to the ratios). More proof that higher credit card balances will squash your score...while balancing with installment loans helps you. I'm Actually planning on doing 2.5k minimum loans for 24 mos each. That way 2 mos into it I can pay 1k and keep my installment ratios in line too... keep the loan for 1 year and repeat. That way my installment ratio is only high for 2 mos or so. I definitely have started my 3 month window for applying and I'm so far holding to it. I want things to be in order for my Amex app next year.
