I think this method can be useful if you are relying just on a computerized read of your credit file. However, I can see that several loans for the same amount of $ in a particular time span would appear to a human underwriter as a "manufactured" loan. That being the case, I don't think it would do any particular harm; it just wouldn't accrue the benefits for which one had hoped. Years ago as a student, I did open an installment loan at my credit union using stock certificates as collateral. I did this primarily to add to my credit file (student credit cards were not as common then as now.) However, my loan was for more than $1000 and only at one credit union. I know that loan helped me establish credit The other concern I would have, particularly for those who have opened many accounts in a short span of time, is that this might have an inverse effect on your credit score. Remember one of the risk scores is "too many open accounts." From what I've read that is a score that counts number of accounts, age of accounts and overall length of credit history. Thus a lot of new accounts and a short credit history will be read by the scoring model as a higher risk factor, while the same number of accounts that are older with a longer overall credit history will be read by the model as constituting less risk. However, I could be wrong about this anyone who can shed light on this aspect would be greatly appreciated.
judyputy, You are exaclty correct. In the field they call it"stacking" when someone uses this process in such a way as it is just too noticable. You should vary the amounts and they should at least be 2000.00 dollars in order help build some solid trade lines on your reports. I would try to vary the amounts and I wouldnt worry so much about taking them out consecutively. This works really well for someone who hasnt had any positive trade lines on their reports in a while. These should be short term ranging 6-12 months. Many institutions will require a full year term for your loan. This can really speed up your recovery in a short time. All loans that are paid off in full and never late will boost your score also. Of course, if you have a real need to borrow for something you need this may be the better alternative, but unfortunately most consumers dont have the funds to pay off the loan in a short period to reflect the paid off trade lines. The longer term loans are the best history builders and if you have the time to wait, they are well worth it.
Originally quoted by Curiouser' The other concern I would have, particularly for those who have opened many accounts in a short span of time, is that this might have an inverse effect on your credit score. Remember one of the risk scores is "too many open accounts." From what I've read that is a score that counts number of accounts, age of accounts and overall length of credit history. Thus a lot of new accounts and a short credit history will be read by the scoring model as a higher risk factor, while the same number of accounts that are older with a longer overall credit history will be read by the model as constituting less risk. However, I could be wrong about this anyone who can shed light on this aspect would be greatly appreciated. End Quote" This is why I would not worry about taking out the loans consecutively in a short period of time. Also, remember that if you need credit for real during this time you could quite possibly look like a credit risk until the loans are paid off in full. The short term "stacking" could cause an adverse debt to income ratio on a loan application. Not good in the lendors eyes... Just a word of caution to those who may have a more pressing need for funds during this process...,
Couriouser: You are absolutely right in the following. I also mentioned that fact earlier in this thread. ******************* I think this method can be useful if you are relying just on a computerized read of your credit file. However, I can see that several loans for the same amount of $ in a particular time span would appear to a human underwriter as a "manufactured" loan. That being the case, I don't think it would do any particular harm; it just wouldn't accrue the benefits for which one had hoped.
I checked with a couple of major banks in my area and found out they won"t do a secured installment loan for less than 3000.00.Could get expensive if you plan on stacking.If it takes 3 grand to play,I think I"ll just watch for now?
Couriouser: I think you are absolutely right again. That's why I have not even thought about using the ploy now. **************** The other concern I would have, particularly for those who have opened many accounts in a short span of time, is that this might have an inverse effect on your credit score. Remember one of the risk scores is "too many open accounts." From what I've read that is a score that counts number of accounts, age of accounts and overall length of credit history. Thus a lot of new accounts and a short credit history will be read by the scoring model as a higher risk factor, while the same number of accounts that are older with a longer overall credit history will be read by the model as constituting less risk. However, I could be wrong about this anyone who can shed light on this aspect would be greatly appreciated. ****************** There is also another factor here that some are not considering. Back in 1975 when I used the ploy, creditors did not have computers and the easy access they have today. They didn't even have fax machines at the time as far as I recall. But they sure didn't have computerized data bases that could spit out credit scores in the blink of an eye. Things were much different then, but they still had the capability to call the local credit bureau and make their inquiry, get a human operator to answer their questions and take it from there. The BIG 3 were just little bitty new kids on the block back then. It's a whole different ball game today. That's why I have stated previously that it's an old hat trick and while it might still work, it isn't going to get you anywhere near as far as it did back then. Quite frankly, in my personal opinion, it's a tactic that's just 'Old hat" and not worth the time and trouble.
I suppose that if one is bound and determined to do this, one could also try the online banks too. Where there is a will, there is usually a way.
So..would it be smart.. OK, I'm not interested in the multiple loan options. However, with my upcoming move, I'm about to buy a household full of furniture. I was intending to pay cash. It seems I would be wiser to use my funds to get a loan for my furniture and build credit. Do you all agree? Also, on another note, I tried to get a loan like this years ago..I'm talking the 70's...and I was turned down by the bank..seems crazy as I had the savings to completely cover the loan plus a few extra..maybe that was just a bad bank, eh? But, if they pull a hard inquiry, it could actually end up just hurting you. However, I totally realize that times are much different now. As a note, I had no bankruptcy then, but was young with little/no credit history.
Re: So..would it be smart.. Oh, let me clarify..I was not trying to do the stacking loans scheme..I simply wanted to get a loan with savings to back it up. The whole stacking idea gives me a headache when I try to follow the process..LOL
Re: So..would it be smart.. Darn it, Nana, I think I agree with you but I fail to see the whole idea you have here. OK, I'm not interested in the multiple loan options. However, with my upcoming move, I'm about to buy a household full of furniture. I was intending to pay cash. It seems I would be wiser to use my funds to get a loan for my furniture and build credit. ************ I guess the part that confuses me is your saying "It seems I would be wiser to use my funds to get a loan for my furniture and build credit." ************** Or am I just too stupid to walk and chew gum at the same time?? Probably so. But at any rate, please forgive my stupidity and clarify this for me a bit.
In Atlanta I talked with several banks. Yes, I know I can use the internet but I'd rather have great relationships with banks here. Just a quick view of the ones I've talked with thus far: First Union: 5,000 min loan. CD only. Good for the duration of the cd. Never seen anyone declined, but no idea on min fico needed. No prepayment penalty. % loaned and interest rate determined by score. Southtrust: 3.000 min loan. CD or passbook savings. Good for the duration of the cd or will hold savings UNTIL the loan is completely paid. I specifically asked about unfreezing proceeds, NO. Noone ever declined that she's seen (down to 575 fico score ok). $100 application fee. No prepayment penalty. Will loan 100%. interest rate 2% over cd rate. Suntrust: 2.000 min for the CD. CD loans only. Pretty much guaranteed... $100 application fee. No prepayment penalty. Will loan 100% of cd. interest rate 3% over cd rate. Fulton Federal Bank: 1,000 min for loan CD loans only. NOT guaranteed approval (have seen declines on this cash secured loan). No fees, no prepayment penalty. 90% loan, not 100%. 3% over interest rate. All required pulling credit. Some of the smaller credit unions I talked with pulled credit. All major banks reported the tradeline, some smaller credit unions report only to Equifax, but say you can request adding it to your other reports for a fee I can pay.
Re: In Atlanta I ,personally wouldn't recommend "stacking" for the simple reason that : when you are in a position of "rebuilding" your credit profile,most likely,the reasons for "rebulding" or building "new profile" is for due most likely to depleted cash flow. Your confidence are rising high and you feel unconquerable for first time or again after relapse and you tend to over extend yourself and things start falling apart and you haven't accomplished your goal and you are at bottom of the barrel again.IMHO,I would suggest to one "rebuilding" or "establishing" for first time to take one at a time.Be realistic and allow yourself room for the unexpected.Managing one is more sensible than to have to default on all three, should a crisis arise.It will all come in due time,no reason to rush and be sorry in long run. It sounds very simple and easy,but "big banks" are controlled by computer generated approvals.It helps to have a long term relationship with bank or union first.Why,if you have a good education going,a good job and a good boyfriend out there,would anyone want to rush it and jeapordize and risk it all.My advice to PSCgirl is :be content where you are now and if hell bent to do this,do just one bank secure loan and get that one positive on credit report and then do another behind it after the first is paid for and you have it nailed down on credit report. Rome wasn't built in a day.
All of the bank and CU personnel I have talked to seem to think that this is an excellent method of building installment history. Even with a prior BK I have excellent revolving history since. In fact I am only using 3% of my revolving. Each one of them told me to get some more installment history on my report and that borrowing against my own savings account is a good way to do this. Actually, I am not using the proceeds to pay any of the loans back. I was also told that a default on these types of loans holds the same weight as if the loan were unsecured. It would go through collections and you would not be able to open another account with the institution you defaulted with, etc. I was fortunate to find a bank that uses the loan proceeds as collateral for the loan. It is extremely hard to find banks that will do these types of loans. The minimum they will do it for is $2000. You do not walk out of the bank with a check. The proceeds are placed in a CD with the term equal to the term of the loan. There are no pre-payment penalties, however, if you pay the loan off ahead of schedule, your loan proceeds are still locked up until the CD matures. Therefore, you cannot use the proceeds to pay the loan back, you have to pay it just as though you were paying a regular loan. The bank calls it the "Fresh Start" program. Approval is no cake walk either. I had to provide documentation and answer all sorts of their questions. It reminded me very much of the mortgage process. It took three weeks to get an approval on this loan. I also just opened a savings share account and took a secured loan out for $500. This process was a little easier and I was able to close the same day. But, these are the CU people that forwarned me about defaulting (what would happen). No, I am not going to use the proceeds to pay down this loan. The proceeds are going right back into my Money Market account. Now get this. My savings are still earning interest while they are frozen. My savings rate is 2.25%. My loan interest rate is 5.25%. This means I am paying a net interest rate of 3%. Now I am taking the proceeds and putting them back into an account that is paying 4%. So guess what? I am not paying any interest at all for this loan! In fact I am ahead 1% for this loan. In a couple of weeks, I will be taking out a loan through my other credit union. If I take the proceeds and put them back into my other account, I will break even (a no cost loan)! If you research enough, you can do this. So yes, even though I am paying interest on my first loan, the cost involved is still worth it to me to get the results and a positive loan relationship with this bank.
Installments replace revolving After having talked with several people, I have been told that holding balances on our revolving credit will dramatically lower the scores. Contrarily, I was told that higher installment debt doesn't seem to lower the score nearly as much. For those of us using our credit cards to rebuild credit (and leaving some balances on the cards to do so)... I am now getting installment loans to replace the credit card balances... I want to show some payments.. some balances but I'm moving them from credit cards to installment loans. Eg: save your money, use it to get installment loans, take the proceeds to pay off those subprime credit cards... and pay your debt off at a 3% rate not a 19% ave rate... And build installment credit too! Besides, after you're done, you've got savings accounts / cds with money in them for your trouble Great way to save even more money
Re: dlo64 Marie, Another good idea on paying off revolving credit. I have enough revolving credit but on 3% utilization so I am not too worried about the small balances. As to the bank I am using, my guess is you want to know the bank where I am putting the proceed checks. It's State Farm Bank. Yes, State Farm has a bank. Go to www.statefarm.com They have worked out pretty well for me. If you search around the internet and can put large enough deposits in, you can find banks that may pay even more on your money. So if you work this right, you can do a secured savings or CD loan at no cost. Hope this helps.
