How to Establish A Good Credit Rating
\nby Jay Anderson, Loan Broker (c) 1986<\/p>\n
As a loan broker, I am often called upon to make a loan to a
\nnew or existing business. After a business has been around for a
\nyear or so, they have usually developed a good relationship with
\nat least one bank. If an existing business needs a loan for
\nbusiness expansion, the bank they have been dealing with all
\nalong is usually willing to make the loan. This is especially
\ntrue if the business wants to borrow the money up to the amount
\nof money that they already have in an account. Or perhaps they
\nwill use their existing account as a “compensating balance”,
\nwhich means they can borrow perhaps $40,000 on a $10,000 existing
\naccount.
\n This is fine for an existing, established business. But
\nwhat does a new business do to establish credit? Maybe you are
\nsomeone looking to borrow a sum of money to open a new business
\nor wish to invest the money in a “sure-fire” investment. In
\nthese cases, unless you have an already established credit rating
\nin good standing, you will have great difficulty in obtaining the
\nfunds you need.
\n What I am about to describe is a method that will allow you
\nto establish credit, even if you have no credit history or even a
\nlousy record of using credit in the past. I have used these
\nmethods many times when I have assisted my clients in getting
\nloans where their credit history was the deciding factor as to
\nwhether they would get the loan or not.
\n Before I describe these methods, let me emphatically stress
\nthe following point. NEVER borrow money with the intention of
\ngoing into debt. What do I mean by this? This means that unless
\nthe ultimate outcome of borrowing money will be to make a PROFIT
\non this money, then you are not using credit wisely. Ask
\nyourself these questions before borrowing any money:
\n* Will the venture I am using this money for ultimately pay
\noff the principle plus interest, and still leave me with a
\nprofit?
\n* Will whatever I plan to buy on credit outlast the debt?
\n* Will the interest charges make the purchase a very expensive
\none?
\n* Could I possibly rent or lease the item, possibly with the
\noption to buy in order to free up this credit for other purposes?
\n* Do I truly know the actual cost of using this credit?
\n* Can I realistically make the payments?
\n Basically, don’t treat credit lightly. There a a huge
\ndifference between buying something solely for the pleasure of
\nowning it and buying in order to make a profit. Keep this clear
\nin your mind before using your new found credit.<\/p>\n
The Bank, Your Best Credit Reference<\/p>\n
In order to obtain excellent credit references from several
\nbanks, you will need $500. If you don’t have 500 dollars,
\nperhaps you can borrow this amount from someone, or even save it
\nup from a weekly pay check. You see, you are not going to
\nactually spend this money, just a small part of it. Your actual
\ncost will be minimal compared to the benefits you will ultimately
\ngain by following this procedure.
\n Take the $500 and find a convenient bank that offers a day-
\nof-deposit to day-of-withdrawal type of savings account. Most
\nSavings and Loans offer this type of account. If you already
\nhave this type of savings account, you will save the bother of
\nthis first step.
\n A week or two after you have opened this account, apply for
\na $500 loan at the same bank, payable in 12 monthly installments.
\nYou will have no trouble getting this loan, no matter what your
\npast credit history is. This is because you are going to
\nsurrender your savings pass book as collateral for the loan.
\nSince you have $500 in the account, the bank will not check into
\nyour past credit history since this is a NO RISK loan for them to
\nmake. As a matter of fact, banks love to make this type of loan.
\nNot only are you a savings customer, but you are taking your loan
\nbusiness to them and offering as security … CASH!
\n Now take your $500 of borrowed money and find a second bank
\noffering the same day-of-deposit to day-of withdrawal account and
\ndeposit this same amount into the account. Be sure to go to a
\ntotally different second bank and not just another branch of the
\nfirst bank. To recap, you now have two savings accounts with a
\ntotal of $1,000 earning interest from the day of your deposit.
\nNow go to the second bank a week or so later and ask for the same
\n$500 loan using your pass book as collateral. Again, you should
\nhave no problems since this is a no risk loan for the bank.
\n Repeat this process with a third bank the exact same way you
\ndid with the first two banks. If you have any doubts that this
\nwill work, my clients have done this dozens of times. In only
\none case did the banks check with each other only because my
\nclient was foolish enough to write down the names of the other
\nbanks on the application to the third bank. But there are plenty
\nof banks around, and filling out another application at another
\nbank solved the problem.
\n Finally, go to a fourth bank that offers a free checking
\naccount with no minimum balance required. (At the time of this
\nwriting, Roosevelt Savings and Crossland Savings offer this type
\nof account in the NY City area.) Take the $500 and open a
\nchecking account with it. Make sure the deposit is with cash so
\nyou can start writing checks immediately. Send a check to cover
\nyour first loan payment at each of the three banks, even though
\nthe first payment isn’t due yet. A week later make your second
\nloan payment, and a week after that, make your third loan payment
\nto all three banks.
\n You are now three months ahead in your loan payments to
\nthree banks. This serves the following purposes:
\n1. You have freed up an amount equal to the three payments in
\nyour three savings accounts.
\n2. You now have an excellent source for a credit reference …
\nthree banks!
\n3. You have savings accounts at three different banks plus one
\nfree checking account.
\n4. You still have most of your $500 intact as about 1\/3 or
\nmore of the interest is offset by the interest you are getting
\non your savings account.
\n5. You can now walk into any bank or lender and offer 4 banks
\nas a reference, three of which you have borrowed from and paid
\nback early.
\n6. Credit card companies will discover your excellent repayment
\nhabits when they investigate any application for credit submitted
\nto them.
\n A credit investigation at this point should no longer make
\nyou tremble in your boots. In fact, you should welcome these
\ninvestigations at this point. The great thing is that you have
\naccomplished all this at a minimal expense and under 30 – 45
\ndays.
\n In the next article in this series, I will show you how to
\nuse your new found credit to obtain credit cards to your heart’s
\ncontent. But as I stated earlier, unless you are going to use
\nyour cards to make you money, you are not using this resource
\nproperly. –<\/p>\n
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