How to Quickly Improve Your Credit Score by Adding Positive
Payment History to Your Credit Report
Most consumers are aware that negative items on a credit report
can be disputed with the three major credit reporting bureaus.
Often, this process can lead to a significant improvement in
credit score through deletion of the derogatory items that were
lowering the score.
To achieve excellent credit, however, it's not enough to just
remove negative entries. Why? Because a lack of positive payment
history is also an obstacle to having good credit. You need to
demonstrate a record of on-time payments in order to raise your
credit score.
In this article I will describe two simple techniques for
rapidly ADDING good credit entries to your file.
THE CO-SIGNER TECHNIQUE
All that is necessary to add years of excellent credit history
is the love and trust of a friend or family member who has good
credit.
Credit card companies are always willing to have their best
customers add extra cards for family members. By adding your
name to one or more of their accounts, they will actually cause
a new credit card to be issued in your name. The "catch" is that
they will be the co-signer on the account, meaning that they are
responsible if you miss payments.
Of course, you never want to risk the credit rating of a friend
or family member, so simply have them use their own address on
the application for the extra card. That way, the card will be
mailed to them, and even though it has your name on it, the card
will remain in their possession. They can even cut it up if they
want to.
The simple beauty of this approach is that the new card will
show up on your credit report, and normally it will show the
opening date of the original card (not just the application date
for the extra card), as well as the entire credit history of
that card! It's like getting years of good credit added to your
file with the stroke of a pen.
THE PASSBOOK SAVINGS LOAN TECHNIQUE
The "Passbook Savings Loan Technique" is a great way to add
positive payment history to your credit file. It will also give
you an excellent credit reference to use for most types of
financial applications. This technique does require some cash -
at least $500 to $1,000. However, this amount will be held in a
savings account as loan collateral, and the total out-of-pocket
cost to complete this technique should be well under $50.
Here is the Passbook Savings Loan Technique in detail, so you
can see exactly how everything works.
STEP 1 - Locate a Small Bank that Meets Your Requirements
I recommend that you work with smaller community banks and not
the major chains. The smaller banks are more likely to have the
exact type of account that you will need to open, and they are
more likely to work with you and be flexible. Savings & Loan
institutions and Credit Unions can also be used, provided they
meet the requirements. The product you want is called the
"Passbook Savings Account," which is basically just a simple
savings account. And the type of loan you will take out is a
"Passbook Savings Loan." This is the easiest type of loan to get
because it is totally secured with your own cash. Most banks are
only willing to loan you 85% of the amount you have on deposit,
so there is always some reserve money in the account.
Your target bank will be suitable for this method if it meets
the following three requirements:
A. The bank must have a Passbook Savings Account product with NO
MONTHLY FEE on balances of $500 to $1,000.
B. You must be able to borrow up to 85% of your balance on a
12-month loan schedule. This is typically called a Passbook
Savings Loan.
C. CRITICAL: The bank MUST report activity on this account to
the three major credit bureaus (Experian, TransUnion, and
Equifax).
If the bank product does not meet these requirements, then do
NOT use that bank. There are thousands of small banking
institutions throughout the country, so it should be fairly easy
for you to find one in your local area.
STEP 2 - Open a Passbook Savings Account
Go to the bank you've chosen and open a Passbook Savings Account
for $1,000 (or less depending on what you have to work with).
Take your Passbook home and wait a week or so (because you don't
want it to look like you opened the account only for the purpose
of taking the loan).
STEP 3 - Obtain a Passbook Savings Loan
Return to the bank and ask to see a loan officer. Look your
best, be courteous, and explain that you wish to take out a
Passbook Savings Loan for $850 (or 85% of whatever amount you've
actually deposited).
When you take out your loan your savings account is frozen.
However, every time you make a payment you unfreeze an amount
equal to your payment, less a few dollars for interest. Be sure
to ask that the loan be for at least one year, with minimum
monthly payments. Do not get a simple one-year loan with no
payments. This will not benefit you at all, because you are
trying to establish a history of payments.
You will not be turned down for this type of loan no matter what
your previous credit history and in most cases it will not even
be checked. If you do have bad credit though, make sure you tell
your loan officer before he or she pulls your credit history.
Tell the bank representative you are trying to re-establish your
credit, and that a good credit rating is very important to you
now.
STEP 4 - Make Your Payments
Assuming an interest rate cost of 6%, your monthly payments on
the $850 loan will be $73.16. (Remember, this is a secured loan,
so the interest rate should be fairly low.) Since you have
"borrowed" $850 in cash, you will use that money to keep the
payments going on the loan. Be sure to make your payments well
before the due dates. Always pay EARLY, in order to be on the
safe side in establishing good payment history.
STEP 5 - Pay Off the Loan Early
After six months, pay off the loan early. At this point, you
will have approximately $980 remaining from your original $1,000
deposit, part of it as cash on-hand, and some remaining in the
savings account. You will have paid a whopping $20.31 in
interest (assuming the rate was 6% for the secured loan). I'm
sure you will agree that $20 is a small price to pay for adding
six months' worth of good payment history to your credit report!
STEP 6 - Make Sure the Loan Shows on Your Credit Report
After you have paid off the loan, obtain fresh copies of your
credit reports to verify that the loan payment history is
showing correctly. Since you selected a bank that reports
regularly to the big three credit bureaus, everything should
show up correctly. But mistakes do happen. If the loan is not
reported correctly, then ask the bank directly to fix the
omission, or ask the credit bureaus in writing to add the credit
reference to your report.
The Passbook Savings Loan Technique is a simplified version of
the more complicated "Three Bank Technique." Basically, the
concept is to use the secured loan proceeds from one bank to
open up another account at a second bank, and then to repeat the
process for a third bank. The math is a lot more complicated,
but the principle is the same, with the added benefit of having
three simultaneous loans adding positive payment history to your
credit report. This approach costs a little more in interest
expenses, and involves a lot more work, but can really
turbo-charge your positive credit history.