Ways to Rebuild Credit
Author: DHK
Posted: Sat Feb 26, 2005 12:48 pm
Post subject: Ways to Rebuild Credit
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.
Author: NightStar
Posted: Mon Feb 28, 2005 10:18 am
Post subject: Ways to Rebuild Credit
I have heard of this, my past employer was telling me that CD accounts could be used to establish secured installment loans, and that in this situation a person should be approved without credit check since money is going right back in to investment.
I just didn't have a clear outline of how that would work with my lack of knowledge on the investment side. This is great that you where able to do that.
_________________
Best Regards,
Pammila Phillis
Board Monitor
http://www.cardratings.com 501-663-0314 PH
Author: Ira
Posted: Wed Mar 09, 2005 4:30 am
Post subject: Ways to Rebuild Credit
Let me get this straight. You invest at 2.32% and borrow at 2.5%. That means you're immediately losing .18%. Now you invest the money at 2.6%, thus gaining back .1% for a net LOSS of .08%. Sorry I must be missing something here.
I would much rather use the 0% balance transfer intro rate method which I have been doing for several years. Do a 0% balance transfer, invest the money at ING, or Emigrant which now pays a full 3%, pay the monthly minimum until the intro rate expires, draw out the principal and pay it back just before the intro rate expires. I made almost $900.00 doing this last year.
_________________
Do not let what you cannot do interfere with what you can do.
Ira
Author: DHK
Posted: Wed Mar 09, 2005 9:44 am
Post subject: Ways to Rebuild Credit
IRA - 2 things:
1) This is mainly to help people rebuild credit - who CAN'T QUALIFY for 0% BT deals.
2) Keep in mind that the CD is still earning interest as well.
CD rate = 2.32 earnings
Interest rate on loan = 2.32 + 2.5% pay.
The 2.32% cancels itself out. You pay it, but you earn it as well.
The only part you worry about is the 2.5% above the CD rate.
Does that make sense?
Think of it as a NET cost/profit after all is said and done.
Author: Christyk
Posted: Tue Apr 26, 2005 3:02 pm
Post subject: Ways to Rebuild Credit
Ira wrote:
I would much rather use the 0% balance transfer intro rate method which I have been doing for several years. Do a 0% balance transfer, invest the money at ING, or Emigrant which now pays a full 3%, pay the monthly minimum until the intro rate expires, draw out the principal and pay it back just before the intro rate expires. I made almost $900.00 doing this last year.
Hi, Ira.
How do you use a balance transfer to get cash to put in ING? Aren't balance transfers done by paying off current credit cards and loans (not paid directly to you)?
Thanks for the suggestion. If I get this one point straight, it sounds like a game I would play.
Christy
_________________
To accomplish great things we must not only act but also dream, not only plan but also believe.
~Anatole France
Posted: Sat Feb 26, 2005 12:48 pm
Post subject: Ways to Rebuild Credit
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.
Author: NightStar
Posted: Mon Feb 28, 2005 10:18 am
Post subject: Ways to Rebuild Credit
I have heard of this, my past employer was telling me that CD accounts could be used to establish secured installment loans, and that in this situation a person should be approved without credit check since money is going right back in to investment.
I just didn't have a clear outline of how that would work with my lack of knowledge on the investment side. This is great that you where able to do that.
_________________
Best Regards,
Pammila Phillis
Board Monitor
http://www.cardratings.com 501-663-0314 PH
Author: Ira
Posted: Wed Mar 09, 2005 4:30 am
Post subject: Ways to Rebuild Credit
Let me get this straight. You invest at 2.32% and borrow at 2.5%. That means you're immediately losing .18%. Now you invest the money at 2.6%, thus gaining back .1% for a net LOSS of .08%. Sorry I must be missing something here.
I would much rather use the 0% balance transfer intro rate method which I have been doing for several years. Do a 0% balance transfer, invest the money at ING, or Emigrant which now pays a full 3%, pay the monthly minimum until the intro rate expires, draw out the principal and pay it back just before the intro rate expires. I made almost $900.00 doing this last year.
_________________
Do not let what you cannot do interfere with what you can do.
Ira
Author: DHK
Posted: Wed Mar 09, 2005 9:44 am
Post subject: Ways to Rebuild Credit
IRA - 2 things:
1) This is mainly to help people rebuild credit - who CAN'T QUALIFY for 0% BT deals.
2) Keep in mind that the CD is still earning interest as well.
CD rate = 2.32 earnings
Interest rate on loan = 2.32 + 2.5% pay.
The 2.32% cancels itself out. You pay it, but you earn it as well.
The only part you worry about is the 2.5% above the CD rate.
Does that make sense?
Think of it as a NET cost/profit after all is said and done.
Author: Christyk
Posted: Tue Apr 26, 2005 3:02 pm
Post subject: Ways to Rebuild Credit
Ira wrote:
I would much rather use the 0% balance transfer intro rate method which I have been doing for several years. Do a 0% balance transfer, invest the money at ING, or Emigrant which now pays a full 3%, pay the monthly minimum until the intro rate expires, draw out the principal and pay it back just before the intro rate expires. I made almost $900.00 doing this last year.
Hi, Ira.
How do you use a balance transfer to get cash to put in ING? Aren't balance transfers done by paying off current credit cards and loans (not paid directly to you)?
Thanks for the suggestion. If I get this one point straight, it sounds like a game I would play.
Christy
_________________
To accomplish great things we must not only act but also dream, not only plan but also believe.
~Anatole France
posted by CardRatings.com at 2:19 PM
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