How to Get Credit When You Have No Credit
Posted: Monday, January 04, 2010
by Naiomi Pitre
Imoian Press, LLC
We all know about the confusing Catch-22 that occurs when you have no credit at all, and you are seeking to establish a good credit history. The answer that you get from most creditors is, "Due to the fact that you have a limited credit history, we are sorry to inform you that we are not able to extend you a credit line at this time." How are you supposed to get credit started if no one will give you a chance? As a formerly licensed banker, I will tell you that there is a simple way to begin your journey into successfully managed credit card debt by doing something I like to call, "The Secured Loan Secret".
See if your mother, father, sibling, or family friend will lend you $1000 for just one day. If this is not possible, 'borrow' it from your own paycheck. You will honestly only be using it for one day, and you can return the money to your account (or whoever lends you the cash) within 24 hours. Bring the money to the bank where you have your own personal checking account.
2. Tell your banker that you would like to open a secured line of credit.
Be sure that your banker understands that this is an urgent matter, and get their guarantee that they will rush the application so that you can get everything approved and funded in the same day. You don't want any surprise delays. A good banker will be able to call their loan department after submitting your application and ask them to rush the process for you due to an emergency. Also, ensure that the bank reports their secured credit lines to the credit bureau.
3. Prior to submitting the application, deposit the $1000 into your account.
Your banker will assign the funds to your secured credit line application, essentially putting a hold on the funds until you pay back your loan. That $1000 will remain in your account until you pay off the loan, then it will be released to you. So, your payoff at the end of the loan will be getting $1000 paid back to you. Because you are giving them secured funds to hold, the approval process is quick and easy. It isn't the same process as when you are applying for regular unsecured credit, when the guidelines are more stringent. Smooth sailing!
4. Once the loan is approved, the banker will give you $1000.
After calling to rush the approval, the banker will ask you whether you want to receive a check for $1000 or a direct transfer into your bank account. If you've borrowed the money, you will want a check (which you can cash in the bank if you need cash) so that you can pay it back. If you 'borrowed' it from yourself, have it redeposited into your account. This $1000 is your 'loan'.
5. Ask your banker to set you up on an automatic draft payment every month directly from your account.
In order to keep your payments guaranteed to be paid in a timely fashion, ask your banker to set it up to be taken from your account every month. Keep the terms of the loan down to 12 to 24 months. This is just enough time for you to build a good credit history. If you choose 12 months, your payments will be under $100 each month. If you choose 24, they could be under $50!
6. When you can, pay extra into your account.
Credit is built in two ways - paying on time and keeping your balance to credit limit ratio low. That means that if your credit limit was $1000, if your balance is $800, your resulting score will be lower than when your balance is $500, even if you are paying on time. So, whenever you get a chance, pay extra money into the account by coming into the bank and filling out a payment slip (they are usually right next to the deposit and withdrawal slips, but if not, go up to a teller window and ask) with your loan's account number and pay extra to the principal balance. The best suggestion is to pay an extra $200-$300 over the next six months. You don't want to pay it down too much, or else you will pay off the loan quickly and not give yourself enough time to build your credit.
Improving your credit score is not as arduous a task as many people seem to think. Knowing the best banker's secrets to doing it on a budget and with minimal time commitment from you is the key. Always look for creative ways to accomplish your financial goals, and you will succeed!
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