How To Build Your Credit Score from Nothing – Part 3
“Take out a small personal loan at a local bank”
In Part 1 of this series, I discussed how to begin building your child’s credit score/history by getting him/her a student credit card in their name. In Part 2, I showed everyone how to use bills that you pay for your apartment or house in college to further build your history. See the links below if you missed Parts 1 or 2 of this series.
In the third part of this series, I’ll show you a very effective and easy method that I used to build my credit history and make up for the ground I lost by not following the instructions from Part 1 and 2 of this series.
What is this method you may be asking? Good question. It is taking out a small personal loan at a local bank!
While at first this may sound hard, simply follow the steps below, and you will be on your way to building a good line of credit history!
Obtaining a Small Personal Loan with Little or No Credit History
1) Find out the names and addresses of 2-3 good local banks in your area, either by recommendations from people you know, online, or in the yellow pages. The key to this is that it has to be a smaller, local bank! It can’t be a Wachovia or Bank of America, etc. Why is that? Easy! Small banks are desperate for new customers and to establish their name in the area, and they will be willing to take on the added trouble of giving you such a small loan in exchange for the potential for your business in the future.
2) Go to the bank, ask to speak to the loan officer.
3) Explain to them exactly what you are doing – you want to open up a small personal loan ($1000 is a good round number) with a one year payback period to build your credit history, and have no intention or desire to actually use or spend the money. This will make them feel all warm and fuzzy inside. They love security!
4) If they don’t suggest it already, recommend that you also want to open up a CD account at that same bank for the same $$ amount of the loan and use it as collateral against the loan. See how that works? No risk for either party.
Once you have settled on an arrangement that will work for both sides, you can then delve in to figuring out the specifics of the loan (i.e. interest rate you will be charged).
5) After finding out the details of what the $1000 personal loan would entail, tell the loan officer that you want to shop around a little before making your final decision. He/she will completely understand (or should anyway). Then, go to the 1-2 other recommended local banks on your list and do a loan comparison in order to make sure you’re receiving the most favorable terms.
6) After comparing the loan offers from the different banks you visited and deciding which fits your situation the best, fill out all of the loan and CD paper work, and open up a checking account at that same bank as well. The checking account will be where you place the loan money so that you can transfer it directly to pay off your loan payments each month. This can all be set up automatically too! You don’t want to pay off the entire loan all at once. Distribute the payments evenly and in small increments over the entire year in order to gain more improvement to your credit score.
7) After the year passes by and the loan is paid off, discontinue the CD account, transfer the $1000 locked up in that to your normal checking account, and then close your loan and checking account for cash.
8) VIOLA! – You have just built your credit further with little to no risk! Genius!
Keep on eye out for Part 4 of this series, coming soon!
To receive future updates on similar personal finance topics as soon as they are published, subscribe to my blog by clicking on the link below!
Keep on learning!
Jacob
