The Credit System (Part 4)

The Credit System (Part 1)
By John J. Hawk, Sr.

A few words from the author

It's sad but true. A large percentage of Americans suffer from a blemish on their credit .....

Five Steps To Obtaining A1 Credit:

Now that you understand the basics of what credit is, and why it is so important, you are ready to follow our plan to get you well on your way toward building a solvent and solid credit record. Follow our 5 step process and you will finish with 3 bank loans, a Visa and MasterCard credit cards, and at least 2 major department store credit cards. But that's not actually the end - it's just the beginning! You will then be in control of your financial destiny and will be better able to make the kinds of purchases embodied on the American Dream

As you follow each step, remember that lenders and retailers count on making loans or selling goods on credit. The system helps them as much as you. They want to extend credit to you. Through this plan, you make them do so gladly and legitimately.

Step One - Obtaining Bank Loans

Laying the Groundwork:

The first objective after removing negative credit from your credit report is to add positives. This can be achieved by obtaining three bank loans to serve as credit references for future maneuvers. Have you ever noticed that most loan applications require three credit references? Follow this first step and you will have three impeccable references to use for various kinds of credit and loan needs.

This step requires some up-front capital to get you going. The results can be achieved using anywhere from $300 and up, although we recommend investing $1,000. Take heart - the money will not be spent, but is used as secure backing in a savings account until the plan is completed. If you need to raise the cash, you can do so through creative means such as a temporary, part-time job or a garage sale. You can also consider borrowing the money because, again, it will not be spent.

Just be careful not to start off with funds that you may be likely to need in the weeks to follow. Withdrawing this money before the plan is completed would jeopardize your credit and potentially leave you in greater debt.

LOCATING THE RIGHT LENDERS:

Now you are ready to locate your three lending institutions, which can be banks, savings and loans, or credit unions. You can use the bank where you currently have your checking or savings account, although you will still be opening a new savings account. Use your local Yellow Pages to call area banks and ask these questions:

What is the minimum amount they will loan on a passbook savings account?

What is the percent you can borrow?

Using Credit Cards
INTRODUCTION:

SHOP. Smart consumers do comparison shopping when looking for credit such as a mortgage .....

For these purposes, you are interested in opening only a regular passbook savings account, so don't get more details than you need about other types of special account and offers.

Choose a lender that offers high yields and allows you to borrow as much as possible against a secured account. We will now label the banks you have selected Bank A, Bank B, and Bank C.

DEPOSIT, BORROW, AND PROSPER!

Go to Bank A and open a savings account with your $1,000 (or whatever amount you have allocated). This should be an interest-bearing account earning the highest rate you can find. Take your passbook home and wait three days.

Return to Bank A (dressed and poised for success) and ask to see a loan officer. Take your passbook with you, and explain to the officer that you wish to take out a loan, for which you are willing to place your savings account as collateral. This is the easiest type of loan to obtain because it is completely secured with cash. Be prepared to name a reason for the loan, although it should be granted regardless of the purpose because it will be backed by your savings account. Make sure you obtain an installment loan, amortized over one year with monthly payments required. Remember, you are building credit, so a loan that is due all in one lump sum at the end of 180 or 365 days will not serve your purpose. While a credit check is not always make for this type of loan, be prepared to acknowledge any bad marks on your credit record and explain that you are trying to re-establish your credit. Assure him/her that you will faithfully make your loan payments.

Assume you get a loan for 90% - or $900 - of your savings account, with a 6% interest rate. On a $900 loan you would pay $29.52, owing the bank a total amount over one year of $929.52. Your monthly payments will be $77.46.

Once this loan is made, Bank A will freeze your $1,000 so your loan collateral cannot be withdrawn. However, each time you make a payment on your loan, an equal amount (less interest) will be unfrozen in your account and available for withdrawal.

Take your loan check for $900 to Bank B and open another savings account with this amount. Wait three days, and get your second loan - this time for $810 (90% of $900). Your monthly payments here will be $69.71. (Again, assuming 6% interest)

Now use your $810 and open an account at Bank C. Wait three days, and obtain a 90% loan for $729, with monthly payments due of $62.74.

EXAMPLE:

Bank Savings Balance Loan Amount Payment Amount Total Interest Paid

Bank "A" $1,000.00 $900.00 $77.49 $29.52

Bank "B" $900.00 $810.00 $69.71 $29.57

Bank "C" $810.00 $729.00 $62.74 $23.91

The Inside Secrets Of Credit Repair
The information on this disk has saved many people a lot of money. This disk is a guide to repairing your credit. Even if you have A-1 credit, .....

DON'T PANIC!

By the time you obtain your third loan, about two weeks have passed. You now have three bank loans totaling $2,439 and $729 in cash (your loan from Bank C). How will you pay these loans back? It's easy. Use enough of your $729 to make your first payment on your Bank A loan ($77.46). Do the same at Bank B and Bank C. You should now have made payments that are ahead of their due dates by about one week at Bank A, two weeks at Bank B, and three weeks at Bank C. You have used about $200 of your $729, but you have also freed up frozen funds that can be withdrawn later.

Credit Dictionary
Accounts Receivable: credit extended by any person or company to another (normally unsecured) with .....

Now wait about another two weeks and repeat the loan payment process described above, making another set of payments with your remaining cash. At this point, you should be approximately one full month ahead on all three loans. With the balance left from your cash loan, make your third set of payments on the second payments' due date. By now, your $729 should be almost depleted. Approach each bank and withdraw the funds that have been unfrozen to use towards your next set of payments.

Continue this process until at least six payments have been made on each loan. You can pay off your loan in full, if you wish, after that point. Do not pay them off before six months, because this is the time frame usually considered when a payment history is calculated as a possible credit reference.

WHAT DID THIS REALLY COST?

In our example, the interest rate charged on the loans was 6%. And, your savings accounts were drawing 2% interest, making your net interest only 4% (6%-2%). We will assume the loans where for one year (12 months) and that you did not pay them off early. Bank loan A for $900 charged $29.52 interest, from which we subtracted $20.18 - the 2% interest you gained from your $1,000 savings - for an actual annual cost of $9.34. If you paid off your loan in six month, it would have cost you even less! Overall, it costs pennies to re-establish your credit using this method!

That's a very small amount to pay for three fast and easy credit references that indicate your ability to acquire bank loans in varying sizes, make you payments ahead of schedule, and pay the loans off completely before due. These activities will all look very impressive on your new credit report! And, you should still have your original $1,000.

Now is a good time to contact your local credit bureau (ask your banks which one they report to) and have this new credit information added to your profile. The bureaus will send you a credit addition form to complete and mail back. There is usually a small fee for each item to be added. They should also send you an updated copy of your new credit report.

Step Two - Secured Credit Cards

How Secured Credit Cards Work:

Now it's time to use these bank references to obtain a credit card. Select on of the banks you particularly liked doing business with and use your initial $1,000 to make a deposit there. After about one week, pick up an application form for either a Visa or MasterCard and fill it out completely at home. Be certain that the card you are applying for allows for cash advances, and include your other two bank references on the application. Then meet with a loan officer at the bank and give him/her your completed form, saying that you are willing to have your $1,000 frozen to secure a credit card with a $1,000 line of credit.

This type of secured credit plan is very common and is available to new credit builders as well as credit builders with a bad history. Similar to your bank loan, your savings is used as collateral for any debts you may accrue using the card. The card will look like any other Visa or MasterCard, so only you and the bank know it is secured by your savings.

Shopping to Build Credit:

Once you have your card, use it. It is important now to again demonstrate a good payment record. A credit card that never gets used can actually reflect negatively on your profile!

Go to your local shopping mall and find a store that carries a returnable item in the $500 to $800 range (remember; your credit limit is $1,000). You can select a piece of jewelry, a television, audio or video equipment, or other merchandise within this price range. Make sure you understand the store's return policy - you will need to be able to return the item later for a credit on your charge account, not just store credit. Purchase the single item with your new Visa or MasterCard, take it home, and safeguard against damage or theft. After several days, go back to the store and return the item, requesting a credit on your card.

When you receive your first monthly statement for your card, you will notice a column marked Payments/Credits. Your credit for the returned item will show up in this column, although it looks the same as of you had paid for the item in full. Anyone examining your credit record will see that you made a sizeable purchase and a very early payment.

Obtain a Cash Advance:

There is one final step to establishing your good credit record with a credit card company. Stop by a different bank than the one that issued your credit card and ask for a cash advance. Visa and MasterCard allow any lending institution that honors their cards (almost all) to make cash advances for varied ......