It is possible to increase credit score by creating good credit. To achieve this result, you must have some beginning cash. You can begin with as little as $300 or as much as $5,000. The more you have to use the better. Nonetheless, $300 does its job just as well as $5,000. It is essential to take into account that the funds will not be spent. It will be maintained safely in a bank account until you are through using it.

The first thing you have to do is to locate your three banks. Use your local phone book and call around. Ask for the loan division and ask these basic questions.?

1. What is the current yield on savings accounts?

2. What is the smallest amount your bank will loan on a passbook savings account?

3. What is the maximum percentage of account balance you can borrow?

4. What credit bureaus does your bank make use of?

5. Do you report routinely and how often?

After you choose your three banks, the next step is to go to “bank A” and open a savings account. Do not put money in any other type of an account, even though it pays a higher interest rate. Take your passbook home and wait a few days. Come back to “bank A” and ask to speak with a loan officer. Look and appear your best, be courteous, and explain that you wish to take out a short term loan for which you are willing to place your passbook as collateral. This will be the simplest kind of loan to obtain, because cash secures it. Almost all banks are willing to lend you 85% of the cash you have on deposit. When you take out the loan your savings account is frozen, however, whenever you make a loan payment you free up an amount equal to that payment, less a few dollars for interest. Be sure and ask that the loan be for a minimum of 12 months with minimum monthly payments.

Do not get one-year loan with no monthly payments due. This would serve you little benefit whatsoever. We are working to build a payment history. You will not be turned down for this type of loan despite your past credit rating and in a lot of cases it won’t even be looked at. When they are planning to pull credit, tell the loan officer you are rebuilding credit and that a good credit rating is important to you now and something you didn’t appreciate when you were first granted credit.

Once you have obtained your loan, take those funds to “bank B” and open a second passbook savings account. Wait three days and go get your second loan. Just as before be certain it is an installment loan of not less than one year. Take the money to “bank C” and open an additional passbook savings account. Wait a few days and go get your third loan. You now have three bank loans totaling $2187 (based on 85% loan to cash) and $614 cash and here’s what makes it work. As stated before, the payments you make cause an equal amount to become unfrozen in your savings account. For instance, your monthly payment on your first loan is $79.33 per month, (figuring an interest of 12% on that $79.33, $8.50 in interest charged). Remove this interest from the $79.33 and you get $70.83. This is the amount of principal repaid. Because the savings account calls for a 15% cushion beyond your loan amount, after you pay the $79.33 you “unfreeze” $70.33 which you can draw out without disturbing your loan collateral.

By the time you get your third loan, your first payment will be due roughly 7 to 10 days out, on your initial loan. At this time take enough of your $614 for making your first payment. Do this at bank A, B and C. At this point you are earlier than your due dates by a week at bank A, two weeks at bank B, and three weeks at bank C. You have used $205 of your $614, but at the same time you freed up approximately $182 of your frozen funds, which you will be able to withdraw at anytime.

Now wait about two weeks and go back and make your second set of payments. After all this you will end up nearly one full month ahead on all your loans. With the balance left of the $614, make your third payment at each bank on the second payment’s due date. Now that you have spent the $614, approach each bank and withdraw the funds that have become unfrozen. This is about $545. Again use this to make your monthly payments, always one full month ahead of schedule. Continue this approach through the sixth month. You can repay your loan outright after you have reached the sixth month or you can stay with it right through. It is not wise to pay them off before six months as it is unofficially the minimum history allowed when considering an account as a possible credit reference. Remember: The whole intent behind this process is to establish your three banks as future credit references, thus increasing your credit score.

Just how much did this really cost?

In this example, the interest rate was 12%. However the savings accounts were drawing let’s say 6%. Meaning that your net interest only cost 6%. The amount of the interest charged on loan A is $102. The amount of interest you will receive on your savings account is $51. Therefore subtract it out, and you get a total one year charge of $51. This amount is only $4.25 per month. But since you are repaying the loan after making the sixth payment, your true cost is: Loan A Six months @ $4.25 = $22.50 Loan B Six months @ $3.61 =$21.69 Loan C Six months @ $3.07 = $18.52. Total is $65.61.

That is a small amount to pay for three bank references that you now have and you still have your starting money.

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