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.
Before the method is described, 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.
The method has been explained really well by Jay. A. 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.
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 profit?
* Will whatever I plan to buy on credit outlast the debt?
* Will the interest charges make the purchase a very expensive one?
* 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 is 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. You should have no doubts that this will work. Make sure that you are not foolish enough to write down the names of the other banks on the application to the third bank.
Finally, go to a fourth bank that offers a free checking account with no minimum balance required. 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... three banks!
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 back early.
6. Credit card companies will discover your excellent repayment habits when they investigate any application for credit submitted to them.
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 days.
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