AOH :: BRCREDIT.TXT|
Building/Restoring a good credit rating
How to Establish A Good Credit Rating
by Jay Anderson, Loan Broker (c) 1986
As a loan broker, I am often called upon to make a loan to a
new or existing business. After a business has been around for a
year or so, they have usually developed a good relationship with
at least one bank. If an existing business needs a loan for
business expansion, the bank they have been dealing with all
along is usually willing to make the loan. This is especially
true if the business wants to borrow the money up to the amount
of money that they already have in an account. Or perhaps they
will use their existing account as a "compensating balance",
which means they can borrow perhaps $40,000 on a $10,000 existing
This is fine for an existing, established business. But
what does a new business do to establish credit? Maybe you are
someone looking to borrow a sum of money to open a new business
or wish to invest the money in a "sure-fire" investment. In
these cases, unless you have an already established credit rating
in good standing, you will have great difficulty in obtaining the
funds you need.
What I am about to describe is a method that will allow you
to establish credit, even if you have no credit history or even a
lousy record of using credit in the past. I have used these
methods many times when I have assisted my clients in getting
loans where their credit history was the deciding factor as to
whether they would get the loan or not.
Before I describe these methods, let me emphatically stress
the following point. NEVER borrow money with the intention of
going into debt. What do I mean by this? This means that unless
the ultimate outcome of borrowing money will be to make a PROFIT
on this money, then you are not using credit wisely. Ask
yourself these questions before borrowing any money:
* Will the venture I am using this money for ultimately pay
off the principle plus interest, and still leave me with a
* Will whatever I plan to buy on credit outlast the debt?
* Will the interest charges make the purchase a very expensive
* Could I possibly rent or lease the item, possibly with the
option to buy in order to free up this credit for other purposes?
* Do I truly know the actual cost of using this credit?
* Can I realistically make the payments?
Basically, don't treat credit lightly. There a a huge
difference between buying something solely for the pleasure of
owning it and buying in order to make a profit. Keep this clear
in your mind before using your new found credit.
The Bank, Your Best Credit Reference
In order to obtain excellent credit references from several
banks, you will need $500. If you don't have 500 dollars,
perhaps you can borrow this amount from someone, or even save it
up from a weekly pay check. You see, you are not going to
actually spend this money, just a small part of it. Your actual
cost will be minimal compared to the benefits you will ultimately
gain by following this procedure.
Take the $500 and find a convenient bank that offers a day-
of-deposit to day-of-withdrawal type of savings account. Most
Savings and Loans offer this type of account. If you already
have this type of savings account, you will save the bother of
this first step.
A week or two after you have opened this account, apply for
a $500 loan at the same bank, payable in 12 monthly installments.
You will have no trouble getting this loan, no matter what your
past credit history is. This is because you are going to
surrender your savings pass book as collateral for the loan.
Since you have $500 in the account, the bank will not check into
your past credit history since this is a NO RISK loan for them to
make. As a matter of fact, banks love to make this type of loan.
Not only are you a savings customer, but you are taking your loan
business to them and offering as security ... CASH!
Now take your $500 of borrowed money and find a second bank
offering the same day-of-deposit to day-of withdrawal account and
deposit this same amount into the account. Be sure to go to a
totally different second bank and not just another branch of the
first bank. To recap, you now have two savings accounts with a
total of $1,000 earning interest from the day of your deposit.
Now go to the second bank a week or so later and ask for the same
$500 loan using your pass book as collateral. Again, you should
have no problems since this is a no risk loan for the bank.
Repeat this process with a third bank the exact same way you
did with the first two banks. If you have any doubts that this
will work, my clients have done this dozens of times. In only
one case did the banks check with each other only because my
client was foolish enough to write down the names of the other
banks on the application to the third bank. But there are plenty
of banks around, and filling out another application at another
bank solved the problem.
Finally, go to a fourth bank that offers a free checking
account with no minimum balance required. (At the time of this
writing, Roosevelt Savings and Crossland Savings offer this type
of account in the NY City area.) Take the $500 and open a
checking account with it. Make sure the deposit is with cash so
you can start writing checks immediately. Send a check to cover
your first loan payment at each of the three banks, even though
the first payment isn't due yet. A week later make your second
loan payment, and a week after that, make your third loan payment
to all three banks.
You are now three months ahead in your loan payments to
three banks. This serves the following purposes:
1. You have freed up an amount equal to the three payments in
your three savings accounts.
2. You now have an excellent source for a credit reference ...
3. You have savings accounts at three different banks plus one
free checking account.
4. You still have most of your $500 intact as about 1/3 or
more of the interest is offset by the interest you are getting
on your savings account.
5. You can now walk into any bank or lender and offer 4 banks
as a reference, three of which you have borrowed from and paid
6. Credit card companies will discover your excellent repayment
habits when they investigate any application for credit submitted
A credit investigation at this point should no longer make
you tremble in your boots. In fact, you should welcome these
investigations at this point. The great thing is that you have
accomplished all this at a minimal expense and under 30 - 45
In the next article in this series, I will show you how to
use your new found credit to obtain credit cards to your heart's
content. But as I stated earlier, unless you are going to use
your cards to make you money, you are not using this resource
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