DHK

Make Money, (re)Build credit and build your savings accounts

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Hey guys,

I've been working on some ideas lately for people like me who really don't want more credit cards, but need ideas on how to build credit. I've found a way to build credit WITHOUT a credit check AND you can build up your savings account balances as well. And if you do it right - you can MAKE money - instead of paying interest, you'll be EARNING interest.

This idea involves the use of secured loans. Basically, you need to start with some money. Think of it like getting a secured credit card - but without the high rate of interest or annual fees.

Step 1: Set up a CD account to borrow against. DCU offers CD's as low as $500. As of February 25th, 2005, their CD rate for a 12 month term CD is 2.32%.

Step 2: Take out a loan against the CD. This doesn't involve a credit check AND the loan activity IS REPORTED! The interest rate you pay is 2.5% above the CD rate.

Key question: Can I EARN MORE than 2.5% on this money?

Step 3: Put the borrowed money in a high-yielding savings account. I suggest INGDirect. As of February 25, 2005 their interest rate on their no-minimum balance, no fee savings account is 2.6%. That's .1% over what you are PAYING!

Step 4: Use THIS money to repay your secured loan. I personally suggest paying it down 50% for the first payment, then equal payments for another 5 months (6 months total repayment period).

To summarize: Your CD still earns money: 2.32%. You borrow the money for an additional 2.5% on top of the CD rate. You invest the borrowed funds in an ING Direct savings account at 2.6% and MAKE money!

Why did I choose DCU for this program? 2 reasons: 1) the borrowing rate is only 2.5% over the CD rate. (Patelco actually does it for 2.25%) 2) this is more powerful - You can always add to the CD balance at any time as long as you contribute $100 or more and your CD term is 12 months or less. This allows you to save more aggressively. This also means that it's easier to re-borrow the money at higher balances.

Keep in mind that you are only using the borrowed money to repay back this loan. If your ongoing cashflow still has room for additional savings, you can still contribute to your CD every month for $100+. This allows you to grow your emergency funds and other savings needs.

I plan to do this plan for loans of $1k, $2.5k, $5k, all up to about $15k and to only keep a loan for 6 months at a time.

Note: Interest rates can change at any time.

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I've had my ING account for less than 30 days, but it's been really easy to work with this account. No problems of any kind so far.

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Did they pull credit?

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I'm pretty sure ING doesn't pull credit, but I haven't checked my reports recently.

In order to fund the ING account, you have to have a checking account at another bank. They use EFT (Electronic Funds Transfers) from this checking account. ING Direct uses your SSN to report the interest you earn to the IRS.

Since ING is an online-only bank, and you have to use another bank to open the account, I don't believe that they need to pull credit - even for Patriot Act requirements.

However, I did find this on their website:

In compliance with Federal law, during our account opening process we use information from your application (for example your name, address, date of birth, and social security number) to verify your identity.

My credit has been damaged recently, but I was able to open the account online without any problems.

Your

Mileage

May

Vary

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Here are the main benefits of this type of plan that I can see:

1. No credit checks!

2. No new credit CARDS (great plan for the less-disciplined - like me!)

3. No annual fees!

4. No declines!

5. Can earn interest on borrowed funds

6. Or, you pay very little interest on the funds borrowed

7. New tradelines established for higher loan amounts (Credit report will show that you have repaid a $25k loan within 6 months; MAY be approved for higher CL's than you would otherwise.)

8. Can continue to build your CD account with more contributions (DCU feature)

9. Build a solid financial future by leveraging your growing financial assets

10. ANYONE can do it - scores of 350+ can and will be approved!!!

Here's my math on a sample loan of $1,000 for 6 months:

CD earns: 2.32% or $11.60 EARNED

Loan cost (2.5% above CD rate): $11.60 + $12.50 = $24.10 PAID

ING earns 2.6% on $1,000: $13.00 EARNED

So take your earnings total: $24.60 and subtract your loan COST of $24.10 and you MADE $.50.

Granted, you're not going to get rich doing this, but you can at least not PAY interest while building your credit.

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It was mentioned on another board that the "tax question" hadn't been addressed.

Personally, I don't care about the tax implications of $1,000 in a CD and another $1,000 at ING. I care about building credit as quickly as possible.

If you are concerned about the tax "stuff" - call a tax advisor.

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Just an observation...

Captial One has an online savings account, too and their rate is 2.65% I was thinking about opening an account with them anyway, since I already have a card with them. I know a lot of people don't like them, but they were the first company to "give me a chance", and I've had no problems with them (other than not reporting my limit...ugh!). Anyway, that rate is .05% higher than the ing direct account. Unless I'm missing something. Which is totally possible. :wink:

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As long as you're looking for a greater return without any fees incurred... you should be just fine!

I personaly don't know much about capital one's deposit products - savings or CD's. Just make sure you read the fine print and that you can have access to your accounts when you need the funds.

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ING's rate in now 2.8%!

I just checked the ING site, and now they are saying it is up to 3%

"Earn 3.00% Annual Percentage Yield on an FDIC-insured savings account with no fees, required minimums or service charges… no matter how much you have on deposit."

I believe they do a "soft-pull" from TransUnion.

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I like this but do I need checking acct. I live in va and I cannot open up a bank acct. Ex wife ruin the account I had. I need somewhere where that don't check credit

I just opened up an acct with ing last week, and used my savings acct and it was ok.

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Hey there everyone, I was just hoping to here some updates on your secured loan results after they have been paid, what have you noticed in scores after doing 1 for $500, $1000, $5000 and paid off in six months. I am about to start mine. Thanks. :D

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I think this appears to be a brilliant idea! I also want to know if anyones scores has had a positive impact as a result of the cd & borrong against it..etc..

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I'm going to try this as well as soon as my house sale goes through and I have cash on hand. DCU looks pretty nice. Anyone have any experiences with other institutions that went as well or better?

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I am in illinois And I am trying to find a bank that has the secured installment loan that you talk about. That means of imporving credit through secured loans is also in the suze Orman fico kit. I lived in NY and Carver bank offers those loans to repair credit. They dont credit check ect. I would have to travel to NYC just to open the account. Minimum saving balance/loan $300..

I cant find a bank in illinois to do this. I bank with TCF which by the way is also great if you have chexsystem issues they only care that you dont owe them money.

TCF however told me they need a Transunion score of 680 to approve the secured loan.

any ideas?

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b/c that would not help with the credit building aspect.

Installment loans aren't great with that either. Neither are lots of new accounts.

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In my study of credit rebuild, it is good to have a variety of credit.

You should have one or two installment loans, and some revolving accounts.

Installment loans increases your score over revolving accounts, because your installment loans have fixed monthly required payments, i.e, $5000 borrowed would be $100 monthly repayment until the loan is paid. Your revolving accounts are simply that, once you pay your credit cards down to a zero balance you can start all over again utilizing the CL again.

I learned in my very beginning stage that A-1 credit is easily achieved by having 3or 4 open credit accounts being paid on time every month. Even if you pay the minimum payment(which is what the creditors want) you are considered a good credit customer. Of course if you pay more than the minimun and you pay your loans off early, and pay your credit cards in full when due this reflects in your FICO scores.

I live in Pennsylvania and I joined a Federal CU in November through my son being a member. Now, they offer a share Certificate loan to help you repair your credit, or establish credit. If you have cash on hand as low as $300 you can deposit your money into their Term Share Certificate and they will allow you to open a Share Certificate Loan. You earn high dividends on your CD, and your

loan rate is low. Your CD is held as collateral against the loan, but as you make payments on the loan the funds held become available to you. The rate is based on a 2% point spread abve the current Term Share Certificate rate.

I thought this was great for me since my auto loan will be finished in a couple of months, never late. I really needed another installment loan to be reporting for me. I am rebuilding while, correcting errors in my CR. Currently I have one revolving acct. that I don't use much being reported paid as agreed, and I have a Visa, MC, and Crown Jewelers, no lates, more than the minimum being paid, and now the Share Certificate Loan.

They offer a secured MC but I opted not to get this since I would have to pay finance charges on it, and my money would not be building any interest.

Most banks will give you a secured loan using money in your savings as collateral to secure it. Talk with your bank reps. A lot of banks now offer money management counseling to help improve your credit or to avoid bankruptcy. They will give you suggestions on repairing credit, and establishing credit.

You can start off borrowing as low as $300 but if you can do $1000-$5000 it would be favorable for your credit score. Once you get the check, you can deposit it into your checking acct. that you already have, and use the same money to repay the loan. Once you pay the loan back I would do it again at another bank. If you don't drag it out in repaying it you can have two installment loans reporting within 6 months. Naturallly you would have to pay back more than what their monthly minimum requirement is to knock it out in the least amount of time.

So installment loans, (personal loans, secured savings loans, Term Share Certificate loans,) auto loans, along with 2 revolving CC accts. being paid on time achieves stellar A-1 credit. Continue to repair your credit as you rebuild your credit. Once these are reported you can practically get approval for anything you apply for.

Best of luck to everyone, including myself. I am on my way.

Diehard

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I'm glad this has been posted on the board because I was thinking about doing something like this.

I'm planning on getting a secured loan but I wanted to see if anyone has any recommendations on the bank?

I plan to borrow against a CD with IngDirect given that their interest rate is at 5%. Would I need a savings account in this case?

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Not reading the entire first post, but a few things jumped out at me in regards to "making money".

For starters, realize that all interest is not equal. Borrowing money will be expressed as APR, and saving money will be expressed as APY. You need to convert one to the other to see what the difference between them really is.

Also, don't forget that your interest earnings will be taxed. Do all that math before you declare that you can borrow money and make money at the same time.

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