Increase Credit Score By Building Good Credit

It is possible to increase credit score by creating good credit. To achieve this result, you’ll need some starting cash. You can begin with as low as $300 or as much as $5,000. The more you have available the better. Having said that, $300 works just as good as $5,000. It is essential to remember that the funds are not spent. It will be maintained safely in a bank account until you are through with it.

Increase Credit Score Using Local Banks

The very first thing you ought to do to increase credit score is to find three local banks. Get your local yellow pages and phone around. Ask for the loan department and ask the following questions.?

1. What is the current yield on savings accounts?

2. What is the smallest amount your financial institution will loan on a passbook savings account?

3. What is the maximum percentage of account balance you can get?

4. What credit agencies does your bank make use of?

5. Do you report automatically and how often?

Once you select your three banks, the first step is to go to “bank A” and open a savings account. Do not put money in any other type of an account, even if it pays a better rate of interest. Take your passbook home and wait a few days. Come back to “bank A” and request to see a loan officer. Look your best, be polite, and make clear that you would like to take out a loan for which you are willing to place your passbook as collateral. This will be the simplest kind of loan to obtain, because cash secures it. Most banks are willing to loan you 85% of the amount you have on deposit. Upon taking out the loan your savings account is frozen, however, after you make a loan payment you unfreeze an amount equivalent to that payment, less a couple of dollars for interest. Make it a point and ask that the loan be for a minimum of one year with minimum monthly payments.

Do not get one-year loan without monthly payments due. This will serve you absolutely no good whatsoever. We are trying to establish a payment history. You will not be turned down for this type of loan in spite of your past credit standing and in most cases it won’t even be looked at. When they are going to pull credit, tell the loan officer you are rebuilding credit and that a good credit rating is very important to you now and something you didn’t appreciate when you were first granted credit.

Increase Credit Score With Continual Early Payments

Once you have obtained your loan, take those funds to “bank B” and open a second passbook savings account. Wait a few days and go get your second loan. Just as before be sure it is an installment loan of a minimum of one year. Take the money to “bank C” and open an additional passbook savings account. Wait several days and obtain your third loan. You now have three bank loans totaling $2187 (based on 85% loan to cash) and $614 cash and here’s what makes it work. As stated previously, the payments you make cause an equal amount to become unfrozen in your savings account. For instance, your monthly payment on your first loan is $79.33 per month, (figuring an interest of 12% on that $79.33, $8.50 in interest charged). Remove this interest from the $79.33 and you get $70.83. This is the amount of principal repaid. Since your savings account requires a 15% cushion beyond your loan amount, after you pay the $79.33 you “unfreeze” $70.33 that you can draw out without disturbing your loan collateral.

By the time you get your third loan, your first payment will be due about 7 to 10 days away, on your first loan. At this point take enough of your $614 to make your first payment. Do this at bank A, B and C. At this point you are in advance of your due dates by one week at bank A, two weeks at bank B, and three weeks at bank C. You have used $205 of your $614, but at the same time you freed up close to $182 of your frozen funds, which you are able to withdraw at anytime.

Now wait about two weeks and go back and make your second set of payments. After all this you will be just about one full month ahead on all your loans. With the balance left of the $614, make your third payment at each bank on the second payment’s due date. Now that you’ve spent the $614, approach each bank and withdraw the funds that have become no longer frozen. This is about $545. Once again use this to make your monthly payments, always one full month ahead of schedule. Continue the process through the sixth month. You can repay your loan in full when you have reached the sixth month or you can stick with it until the loan matures. It is not advisable to pay them off before six months as it is unofficially the minimum history permitted when considering an account to be a credit reference. Keep in mind: The entire intent behind this process is to establish your three banks as future credit references.

How much did this actually cost?

In this illustration, the interest rate was 12%. However the savings accounts were drawing let’s say 6%. Meaning that your net interest only cost 6%. The amount of the interest charged on loan An is $102. The amount of interest you will be given on your savings account is $51. Therefore subtract it out, and you get a total one year charge of $51. This amount is only $4.25 per month. But since you are repaying the loan after making the sixth payment, your true cost is: Loan A Six months @ $4.25 = $22.50 Loan B Six months @ $3.61 =$21.69 Loan C Six months @ $3.07 = $18.52. Total is $65.61.

That is a small price to pay for three bank references that you now have and you still have your starting money.

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