Myth or Reality: Borrow Your Way to Good Credit??!?

[mudmoney]

GICs and Secured Loans to Build Credit??

Hi All,

Quick background: I have horrible credit so I will not be accepted for any credit card anywhere. I have even burned Capital One – so even they’re out of the question.

Funny enough, all my outstanding debts total less than $1500 (I believe, I’m waiting for my credit report to re-verify) – so my infractions were never of a high cost, but they were deliberate and stupid, and I can’t blame anyone but me.

OK, that said, I have $5000 of cash. I’m trying to find the best way to leverage this to begin building credit, especially to get a credit card, but not limited to getting a credit card.

As I’ve said, Capital One will not extend a secured card to me anymore, and I accept full responsibility for that. As far as I know, if Capital One will not allow you a secured card, you’ve burned your last bridge in terms of getting a secured credit card that reports to the major credit bureaus and can help rebuild your credit (NOT a debit card that lets you spend your own money WITHOUT building a credit rating or a card that reports to “alternative” agencies only).

If I’m wrong on this, and there is still somewhere I can get a secured card with my $5000, please let me know.

Now, what a friend suggested is what I can only call a “scheme” (both harmless and legal) by which he CLAIMS to have gone “from zero to hero” with the banks. He didn’t start at R9 like me, so that may be a huge distinction. He started at zero, literally, AND as a student.


His Story:

Anyway, he claims he took $5000 (it wasn’t actually 5000, but for the sake of consistency with my own situation, let’s say it was) and deposited it into a GIC with his bank, then IMMEDIATELY (as in, on the spot, right after depositing it into a GIC) asked for a secured loan against the $5000. Naturally, they granted the loan. He took the loan for two weeks and paid it a day early. He claims he went back about a month later and did the exact same thing, taking a two week loan and paying it promptly. He claims he did this for 6 months or so and then asked the gentleman he’d been dealing with at the bank to extend a $6000 (including $1000 of unsecured credit) loan on his $5000 GIC. He claims they did and that he paid it back promptly and kept doing this until he was getting more in unsecured loans than he was in secured loans.

He then started asking for small unsecured loans WITHOUT asking for any secured loans along with them and continued paying them back responsibly until he was getting larger and larger unsecured loans. He never spent the money on anything, simply put it in another bank account at another bank and then repaid his loans a day or two early. He said when they started offering him $10,000 in unsecured loans (he claims this happened within a year), then he asked for a credit card application and got approved for an unsecured card, based on his borrowing history. He then asked for a line of credit a few months later and had no trouble in getting a $10,000 line of credit.


I know this guy well and would describe him as pretty damned honest. I don’t believe he’s intentionally lying, but it sounds too good to be true.

Can anyone confirm that this is either a- "advisable" or b- "impossible" or even c- "possible but inadvisable"?

IF this is possible (if his recollection is correct, he’s going back 15, 20 years in memory), does anyone see any possible pitfalls, drawbacks or risks to this plan? Is there anything I’m not noticing about it? Any blindspots?

For example, I’ve already noticed that IF his recollection is correct, he’s still omitted the cost of the loan in his equation. He’s neglected to mention that with each repaying of the loan, he paid the interest out of pocket. That is the only “flaw” I’ve discovered in his plan.

In addition to this flaw, I’ve read that if you don’t take a year or so to pay back a loan it doesn’t significantly increase your credit score. Is there any truth to that?

Can anyone see any others flaws, omissions, problems, impossibilities with this plan? Thank you, I’m a credit novice, and before I do anything “creative” with my hard earned $5000, I want to make sure I’m seeing all the variables and it’s not a “gamble” but a “plan”.

Any help? Thanks in advance.....

Oh, and if this is a good plan, in exchange for helping me, then you too can use it for a small licensing fee. But a small hitch: in order to be licensed, you have to have good credit ;-)

Oh, and thank you for taking the time to read all of this. I appreciate it.....

[chane]

Your best bet is getting as many negative items removed from your credit report as you can, then taking that money and either doing what your friend suggests or using it to get a secured card.

Take some of that money and hire Lexington Law to get the items removed.

[mudmoney]

Thanks Chane.... I get that you're saying that removing the bad items is important too.

Couple things. You suggest removing the bad items and THEN getting the loans or a secured card. Is there a downfall to get a secured loan or secured card and WHILE USING IT to build credit, ALSO removing the bad items?

Secondly, he suggested that the secured loans build stronger credit than paying a credit card, so that if I wanted to get in good with my bank, secured loans would lead to getting a credit card faster than the reverse. To your knowledge is this true?

And is it even possible for me to get a secured card until I remove the majority of those items and let 6 months pass? Is it wiser to also be paying secured loans during that period of time that I'm waiting?

And if anyone at all can answer whether paying loans in two weeks is a bad idea for building credit, as opposed to paying them over a year, I'd be thankful.

..... "even more thankful" anyway....... thanks Chane

[chane]

Originally Posted by mudmoney

Thanks Chane.... I get that you're saying that removing the bad items is important too.

Couple things. You suggest removing the bad items and THEN getting the loans or a secured card. Is there a downfall to get a secured loan or secured card and WHILE USING IT to build credit, ALSO removing the bad items?

No, there's not downfall really. But, what if all the negatives came off? Then, you wouldn't need a secured loan.

Secondly, he suggested that the secured loans build stronger credit than paying a credit card, so that if I wanted to get in good with my bank, secured loans would lead to getting a credit card faster than the reverse. To your knowledge is this true?

Yes, I agree with that.

And is it even possible for me to get a secured card until I remove the majority of those items and let 6 months pass? Is it wiser to also be paying secured loans during that period of time that I'm waiting?

It should be possible. Yes, it is wiser, the time to start is now.

And if anyone at all can answer whether paying loans in two weeks is a bad idea for building credit, as opposed to paying them over a year, I'd be thankful.

Actually, paying off loans in 2 weeks is not a good idea, it won't give you any credit history. I missed that part, sorry. It should be at least 3-6 months, if not much longer. Two weeks? lol I don't even think they would give a loan for 2 weeks, let alone report it.

I think your friend is kinda making some shit up.

[mudmoney]

Ha, that made me laugh..... I checked with him and he told me more. He said it wasn't based at all on his credit. He said it was based on him getting to know a couple people at his branch pretty well, including the branch manager who became his workout partner at the gym. He said he never sat with the regular guys after that, he always sat with the branch manager, no matter how small the concern, even just to pop by and say "hi" because he was in the area.

In fact, he said he was the manager's workout partner at the gym before he ever found out he was the manager at his bank, as the guy was humble and nerdy and happy for the partner at the gym, and never mentioned what he did and my friend never asked. One day he walks into his bank and bumps into the guy, finds out he manages the bank and the guy told him to always come see him directly, and was pretty proud to have him as a friend, and basically offered him credit he didn't want.

Yeah, BIIIIIIIIG detail to omit, I don't have all those lucky pieces in place, but he said he felt the principle of the "face time" aspect should still stand. He was suggesting BYPASSING CREDIT ALTOGETHER as the principle by which I might obtain a loan, and going with personal relationships. I told him I wouldn't bank $5000 on it!!! Besides, my branch manager already has a gym partner (wtf???)

So my plan - I'm thinking of opening 2 GICs:

One for $3300 to get a secured CC card against, hopefully at a small credit union willing to take a "chance" with me (any suggestions? I'm in Toronto, if that matters)

Another for $500 to get a secured loan. I'd deposit the SL into another GIC at another financial institution and take a third GIC out and hold on to it, using it to help pay my loans over the year.

This way, if I can find a CU or someone willing to extend a secured card against a GIC, I'd have 3 credit lines with 3 institutions in good standing over the course of the year. Plus $1200 in settled debts (which MIGHT cover them all) That should do well, no?

Any other suggestions? Thanks, btw.....