Improving credit scores with secured loan

[Spartan]

I came across this bit of info that may be able to help raise credit scores. If this is already widely known, then sorry for the redundancy.


The method is secured loan. You go to your bank and tell them you want a secured loan, ie a loan secured with a deposit equal to or exceed the amount of the loan. You can tell them you are trying to improve your credit scores. Some banks are sympathetic and will be glad to help you. Since the loan is fully secured with deposit, it is risk free to them. Pure profit.

When you get the secured loan, use it as collateral and repeat the process at another bank. Fully collateralized, secured loan. You can repeat that a few times.

When you unwind (repay) the loans, just reverse the process. Use the freed up security deposit to repay the next loan...

So, basically, you have created a series of Paid In Full loans, in a short time.

That will help your credit score.


I have not tried the method yet. But I am going to...

[dreamaloud1]

The only problem with this approach is you usually need to have an account with the bank first and also most banks have a fairly large minimum. I called around and everyone but the local credit unions here wanted at least 2500 for the loan, which is more cash than I ahve sitting around.

I did get a 500 dollar one at my new credit union after opening an account with them.

[poorme]

I posted on this a few months ago, whereby a local bank has an offer where they will loan you $2,000 and it goes into a secured savings account. You don't need the up front money. You repay the note at very favorable interest terms and they report the loan and payments to the credit bureaus. You don't actually 'get' the $2k - it sits in an interest bearing savings account, so you DO earn the interest. Some folks were 'fussy' because they felt that without actually receiving the money to use it was as good as just giving your money to the bank. Hey - it is a small price to pay for an easy positive reporting going to all 3 cra's - as I call it "an investment in your credit recovery".

[Princesskina]

WAMU does this I dont know if u MUST be a customer but my friend said it worked for a boost on her credit score BUT she was a wamu customer and employee.

[HHM]

First, I think for many people coming out of chapter 7, they may not have enough cash to serve as collateral. Second, your "credit" is not that important when you consider the opportunity cost of the money that is being held on security. Why should the bank earn 18% return on YOUR money, when you can earn anywhere from 6% + return depending on how risk averse you are.

USE your money to create MORE money...the reason most of us were in BK is we created debt (a house with a mortgage is NOT an asset, it is one big, giant liability). If you have the cash lying around to secure a loan, put that money in a CD, by some stock in an Oil Company, whatever...don't WASTE it by letting it sit as security for a loan.

Rebuilding credit is primarily a function of time. There is very little you need/can to do to have your credit score improve; except you do need to make sure that everything is being reported correctly; but aside from reporting issues, time will ultimately heal your credit: not secured loans, not secured credit cards, not junky hooters cards, etc.

[Princesskina]

First, I think for many people coming out of chapter 7, they may not have enough cash to serve as collateral. Second, your "credit" is not that important when you consider the opportunity cost of the money that is being held on security. Why should the bank earn 18% return on YOUR money, when you can earn anywhere from 6% + return depending on how risk averse you are.

USE your money to create MORE money...the reason most of us were in BK is we created debt (a house with a mortgage is NOT an asset, it is one big, giant liability). If you have the cash lying around to secure a loan, put that money in CD, by some stock in an Oil Company, whatever...don't WASTE by letting in sit as security for a loan.

Rebuilding credit is primarily a function of time. There is very little you need to do to have your credit score improved, Except you do need to make sure that everything is being reported correctly, but aside from reporting issues, time will ultimately heal your credit, not secured loans, not secured credit cards, not junky hooters cards, etc.

Thanks for the wake up call ummm I cant speak for others but I needed this...

[Spartan]

First, I think for many people coming out of chapter 7, they may not have enough cash to serve as collateral. Second, your "credit" is not that important when you consider the opportunity cost of the money that is being held on security. Why should the bank earn 18% return on YOUR money, when you can earn anywhere from 6% + return depending on how risk averse you are.

USE your money to create MORE money...the reason most of us were in BK is we created debt (a house with a mortgage is NOT an asset, it is one big, giant liability). If you have the cash lying around to secure a loan, put that money in a CD, by some stock in an Oil Company, whatever...don't WASTE it by letting it sit as security for a loan.

Rebuilding credit is primarily a function of time. There is very little you need/can to do to have your credit score improve; except you do need to make sure that everything is being reported correctly; but aside from reporting issues, time will ultimately heal your credit: not secured loans, not secured credit cards, not junky hooters cards, etc.

Sounds good in theory.

Except that, when you do the math, you will realize that your couple grants are not going to compound to anything at 6% over a few months.

6% on $2000 = $120 gain in 12 months. $10 a month. $0.33 a day. What a horrible opportunity cost that is!!!! One freaking can of WalMart brand cola gone each day!!!!! Oh the humanity!!

When you pay off a loan, it gets reported and stays on your CR for 10 years. I found out that the series of loans I paid off many years ago, are still being reported on my cr. Bad reports drop off sooner.

One can of WalMart brand pop or a series of positive reports on your CR. Pick your own poison.

[Spartan]

OTOH, if you knowabout the next Cisco, or the next Microsoft.....

[HHM]

First off, the whole mind set is wrong, you want to improve your credit score so you can "borrow" money that you have to pay back (HELLO, how do you think you got into BK in the first place).

Second, the numbers may seem small, but look at it this way...

If you take out a secured loan at 12.99% annual interst on $2,000 for 1 year, that will COST you, $259.80. I don't know about you, but I would rather have the extra $139.80 from saving the money then paying that amount for extra 10-30 points on my credit score.

YOUR CREDIT SCORE DOES NOT MAKE YOU MONEY, IT ONLY PUTS YOU INTO DEBT, WHICH IS WHY YOU HAD TO DECLARE BANKRUPTCY.

[Spartan]

With all due respect, you are making a lot of generalization as well as assumption there.


First of all, you are assuming that people are not making ends meet after bk. That is certainly not always the case. If they are, then of course they should be focusing on securing better income first. That is just common sense. Now, some of us already have secured income and are rebuilding. Therefore, it is to our benefit to accelerate the rebuilding of our credit. Having a good credit, is just part of the redemption process. It is like having a checking account, a credit card, a driving license. Technically, you can possibly make it through life without them. But having those, allows you the liberty to pursue life to the fullest.


Secondly, you are assuming that people haven't learned from their last experience. Some perhads don't. Hopefully, some of us have indeed. Reading the posts here, I think it is safe to say that most have learned.


Thirdly, you are assuming that the loan is for 1 year. That is certainly not the case. Of the personal loans I have taken out and repaid, the terms were 6 months at the longest. I don't know what the rate on secured loans is, but back then, my unsecured loans were only 12.99%. I am sure having a bk will raise that. I also don't know what impact fully collateralizing the loan will have on the rate. But that is neither here nor there.


The issue is whether it is worth the cost to speed up the recovery of someone's credit rating.

It may boil down to a matter of personal preferrence. For me, it is worthy. I have the income and the asset. It is worth the few hundred dollars to speed up the recovery of credit rating. The few hundred dollars do not make any material difference in my living standard. Recovering my credit rating, will enable me to move on to bigger things.


If the few hundred dollars are that material to you, then that is your decision to make. It would be wrong for someone to tell another person what is best for that person in his/her particular circumstances, which only that person is privy of.

[Spartan]

"....YOUR CREDIT SCORE DOES NOT MAKE YOU MONEY, IT ONLY PUTS YOU INTO DEBT, WHICH IS WHY YOU HAD TO DECLARE BANKRUPTCY...."

Nope. That is NOT why I had to declare bk.

Also, good credit score lowers financing cost. It saves money in the long run. If you know how to work and save enough money to buy a house, a car in cash, we all would like to know.


Sooner or later, those of us who need to get our own houses and cars and other necessities needed in order to live life as a normal member of the society, will need credit.

[Spartan]

Look, HHM, I know where you are coming from, and in principle, I agree with your positions.

Most people in bk, are b/c they spent their ways into bk. The last thing they need, is to build back their credit score and borrow money again. They should be living within their means and stay away from credit/debts as much as possible, if not totally.

You are correct that the credit score would be the last thing to worry about.


However, there are always mitigating circumstances. And under those circumstances, this credit rebuilding method may have merit. Some of us do need to get a house, a car and major appliances down the road. Credit is a necessity then. Lower financing cost is beneficial.


Of course, there are those who think they have learned their lessons the last time around... But that is life. You can't save them all.

[HHM]

Whatever, the point is that financing your way to things you cannot realistically afford is not a good mind set.

Also, your under the false assumption that these types of programs actually quicken the increase in credit score. You have created a false dichotomy about the fact that if you don't do these types of things, you can't afford a house in the future. Again, the facts are, TIME, MORE THAN ANYTHING ELSE, will heal your credit. The fact of the matter is, your credit recovery after BK is more a function of your credit score BEFORE you filed BK and there is almost nothing you can do in the first 2 years after being discharged from BK that will speed up the recovery. Use that time to MAKE MONEY, not needlessly put it toward meaningless secured loans.

Regarding assumptions...who cares, the point is the same, credit does not MAKE a person money. As for the loans, it really doesn't matter the length of the loan, putting cash as collateral will ALWAYS cost you more than saving.

But in any event, all we can do is give our advice...and it can differ.

[emoney]

After BK and you have cleaned up your credit reports at the three CRAs you need to add accounts with good payments historys ASAP.
What I did at a local CU was to borrowed $1000 unsecured for six months. The payments were $167 per month for six months. About every ten days I made a monthly payment from the $1000 that was in my checking account which is where the orginal $1000 was deposited.
My total interest cost was about $10 for this tranaction which probably raised my FICO score 30 points. That will save me about $50 yearly on my car and homeowners insuracnce.
regards,
emoney