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Helpful Tips For Establishing Credit

Joseph M Sabol

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If you decided that you would like to have an unsecured credit card, then, when you apply for the Visa or Master Card, you will be using your credit history as a reference. If you have established a good credit history you will most likely be approved for the card. Do not be surprised if you are turned down on your first application. The credit card company must by law tell you why you were rejected. This will usually come in a letter form. Look at the reason and try to correct whatever the problem is. To be rejected the first time is not uncommon.

If you have been turned down, what you have to do is find out why you were declined. Once you find out why you were rejected, and if you find the reason, petty or unsubstantiated, find another bank that uses the other credit reporting system. The other credit system might have different credit information and different criteria for helping banks make a decision. Today it is almost common place to receive Visa and Master Card unsolicited applications guaranteeing your approval for their card. These banks are usually from another part of the country promoting their services on a national level, primarily to put more of their cards into the marketplace. Often you will find it easier to obtain credit from one of these banks than from your local bank. Also you DO NOT want to apply for every card you see. this will add inquiries to your credit report and your FICO score will drop like a rock for doing that. I know inquiries are part of that FICO process.

Use the card for those purchases that you cannot afford to buy cash, expensive items. Be sure you make payments as required before the due date. When you use the card for large purchases and chose to pay those purchases over several months, make sure you can afford the payments before you buy! It is too late after you have bought the item. Always try to pay more than the minimum payment amount each month.

Each banks credit card terms are different, however most banks have a 25 day grace period on purchases during which you are not charged any interest if the bill is paid in full. Cash advances are charged interest from the date of withdrawal. Always read the material that comes with your credit card. Each bank has different charges for its bank card services such as cash advances, delayed payments and annual card fees.

Different banks have different rates of interest on their credit cards. Once you have established a good credit history, it pays to shop around until you find the bank card with the lowest rate of interest. If you have not been able to obtain a Visa or Master Card for any reason, you will have to apply for a secured credit card.

A good way to develop a line of credit for bank loans, is to use your savings account for collateral. We have already discussed this in detail earlier. It is so important that I will highlight the main ideas. If you have a $1000 in a savings account, you can go to a bank and borrow the $1000 using your savings account as security for the loan. Under normal circumstance this type of secured loan would be charged a net interest rate of about 2 % above the rate of interest being paid to you in the savings account. If you are using a Certificate of Deposit as your collateral, be aware that there are definite time limits on paying the loan back. It is usually the same as the maturity date of the CD. Try not to us a CD as collateral for the loan because you can really get yourself in a bind especially when the CD matures. You may not be in a position to pay off the loan at that time. Then what? This may mean the CD will be prematurely cashed in, which in turn will incur severe financial penalties.

As I stated before, try to use your passbook savings account as security unless your loan is large. Also with a passbook savings account, most banks do not really monitor the length of the loan, whereas the CD's are monitored. All the bank is concerned about is that they get their 2% interest on the loan. Really they do not care if you even pay the loan off. . why? Because they have your savings account as collateral! Remember you MUST pay the 2% interest on the loan or they will foreclose on the passbook savings account. Remember as I said before, you pay off the loan, you will find that you still have the $1000.00 plus interest in the bank! Using your savings account as collateral also means that you cannot withdraw the money from your saving account below the amount of the security for the loan. For example, if your loan is secured by $1000.00 in savings and you wish to withdraw the money from your account, assuming you have been depositing regularly as we discussed earlier, a $1000.00 must remain in your account. Also be aware that most banks like to loan at 90% or a 110% security on the loan. In other words, you may borrow 90% of the savings account balance or you must put in 10% more to make the loan happen.

Let me explain this. Lets use your $1000.00. If you went into a bank and proposed this type of loan, the loan officer will say that they can only give you $900.00. Or the loan officer will say you will need to deposit $100.00 more to the account. The reason for this is that the bank requires more money to be held in security than you borrow. The banks are so paranoid about this stuff they think that by adding 10% security they will prevent you from walking away from the loan. Let me tell you something. If you are going to walk, you are going to walk from the loan and nobody is going to stop you.

If you are trying to develop a good loan record, take out a secured loan or share loan even if you do not really need this money. This will cost you a few dollars in interest, but do not consider this a waste of money, consider this as an investment in developing a good bank loan history. It is worth the cost. If you have borrowed money and you do not need it, put the money into another bank and let it grow at interest. Use this account to make your loan payments all the while you are earning interest on the 2 passbooks. When you are close to paying off the loan, say within 3 or 4 months, pay the loan off in full. You have now established a loan credit history showing you that you make your payments on time and even paid the loan off before it was due. This gives you an excellent credit reference. After some time, make another secured loan, maybe borrow a little more this time. Eventually you will be able to borrow more than the collateral of your savings account.

Joseph M. Sabol is a world class Doberman breeder. Please go to or to for further information


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