How to Establish A Good Credit Rating
by Jay Anderson, Loan Broker       (c) 1986

     As a loan broker, I am often called upon to make a loan to a 
new or existing business.  After a business has been around for a 
year or so,  they have usually developed a good relationship with 
at  least  one bank.   If an existing business needs a  loan  for 
business  expansion,  the  bank they have been dealing  with  all 
along  is usually willing to make the loan.   This is  especially 
true  if the business wants to borrow the money up to the  amount 
of  money that they already have in an account.   Or perhaps they 
will  use  their existing account as  a  "compensating  balance", 
which means they can borrow perhaps $40,000 on a $10,000 existing 
account.
     This  is fine for an existing,  established  business.   But 
what  does a new business do to establish credit?   Maybe you are 
someone  looking to borrow a sum of money to open a new  business 
or  wish  to invest the money in a  "sure-fire"  investment.   In 
these cases, unless you have an already established credit rating 
in good standing, you will have great difficulty in obtaining the 
funds you need.
     What I am about to describe is a method that will allow  you 
to establish credit, even if you have no credit history or even a 
lousy  record  of using credit in the past.   I have  used  these 
methods  many  times when I have assisted my clients  in  getting 
loans  where  their credit history was the deciding factor as  to 
whether they would get the loan or not.
     Before I describe these methods,  let me emphatically stress 
the  following point.  NEVER borrow money with the  intention  of 
going into debt.  What do I mean by this?  This means that unless 
the  ultimate outcome of borrowing money will be to make a PROFIT 
on  this  money,  then  you are not  using  credit  wisely.   Ask 
yourself these questions before borrowing any money:
*     Will the venture I am using this money for  ultimately  pay 
off  the  principle  plus interest,  and still leave  me  with  a 
profit?
*    Will whatever I plan to buy on credit outlast the debt?
*    Will the interest charges make the purchase a very expensive 
one?
*     Could I possibly rent or lease the item,  possibly with the 
option to buy in order to free up this credit for other purposes?
*    Do I truly know the actual cost of using this credit?
*    Can I realistically make the payments?
     Basically,  don't  treat  credit lightly.   There a  a  huge 
difference  between buying something solely for the  pleasure  of 
owning it and buying in order to make a profit.   Keep this clear 
in your mind before using your new found credit.

The Bank, Your Best Credit Reference
     
     In  order to obtain excellent credit references from several 
banks,  you  will  need  $500.   If you don't have  500  dollars, 
perhaps you can borrow this amount from someone,  or even save it 
up  from  a weekly pay check.   You see,  you are  not  going  to 
actually spend this money,  just a small part of it.  Your actual 
cost will be minimal compared to the benefits you will ultimately 
gain by following this procedure.
     Take  the $500 and find a convenient bank that offers a day-
of-deposit  to day-of-withdrawal type of savings  account.   Most 
Savings  and Loans offer this type of account.   If  you  already 
have  this type of savings account,  you will save the bother  of 
this first step.  
     A week or two after you have opened this account,  apply for 
a $500 loan at the same bank, payable in 12 monthly installments.  
You  will have no trouble getting this loan,  no matter what your 
past  credit  history  is.   This is because  you  are  going  to 
surrender  your  savings pass book as collateral  for  the  loan.  
Since you have $500 in the account,  the bank will not check into 
your past credit history since this is a NO RISK loan for them to 
make.  As a matter of fact, banks love to make this type of loan.  
Not only are you a savings customer, but you are taking your loan 
business to them and offering as security ... CASH!
     Now  take your $500 of borrowed money and find a second bank 
offering the same day-of-deposit to day-of withdrawal account and 
deposit  this same amount into the account.   Be sure to go to  a 
totally different second bank and not just another branch of  the 
first bank.   To recap,  you now have two savings accounts with a 
total  of  $1,000 earning interest from the day of your  deposit.  
Now go to the second bank a week or so later and ask for the same 
$500 loan using your pass book as collateral.   Again, you should 
have no problems since this is a no risk loan for the bank.
     Repeat this process with a third bank the exact same way you 
did with the first two banks.   If you have any doubts that  this 
will  work,  my clients have done this dozens of times.   In only 
one  case  did  the banks check with each other only  because  my 
client  was foolish enough to write down the names of  the  other 
banks on the application to the third bank.  But there are plenty 
of  banks around,  and filling out another application at another 
bank solved the problem.  
     Finally,  go  to a fourth bank that offers a  free  checking 
account  with no minimum balance required.   (At the time of this 
writing,  Roosevelt Savings and Crossland Savings offer this type 
of  account  in  the NY City area.)  Take the  $500  and  open  a 
checking account with it.   Make sure the deposit is with cash so 
you can start writing checks immediately.   Send a check to cover 
your  first loan payment at each of the three banks,  even though 
the first payment isn't due yet.   A week later make your  second 
loan payment, and a week after that, make your third loan payment 
to all three banks.  
     You  are  now  three months ahead in your loan  payments  to 
three banks.  This serves the following purposes:
1.   You  have freed up an amount equal to the three payments  in 
your three savings accounts.
2.    You now have an excellent source for a credit reference ... 
three banks!
3.    You have savings accounts at three different banks plus one 
free checking account.
4.     You  still have most of your $500 intact as about  1/3  or 
more  of the interest is offset by  the interest you are  getting 
on your savings account.
5.    You  can now walk into any bank or lender and offer 4 banks 
as  a reference,  three of which you have borrowed from and  paid 
back early.
6.   Credit card companies will discover your excellent repayment 
habits when they investigate any application for credit submitted 
to them.
     A  credit investigation at this point should no longer  make 
you  tremble in your boots.   In fact,  you should welcome  these 
investigations at this point.   The great thing is that you  have 
accomplished  all  this  at a minimal expense and under  30  - 45 
days.
     In the next article in this series,  I will show you how  to 
use  your new found credit to obtain credit cards to your heart's 
content.   But as I stated earlier,  unless you are going to  use 
your  cards  to make you money,  you are not using this  resource 
properly.  -