The Lazy Mentor's Reference Journal
"If you're not embarrassed by your offer, then you offered too much"


Building First Time Credit

Building First Time Credit  (Part 1)

What do you do if you're young, in school, and have nothing on your credit report?  I can tell you from experience that you are going to have a tough time until you're older.

I went for my first big loan while still in college.  I had a job, plenty of assets, and cash in the bank.  And my credit file was perfect, though only 4 years old.  These are all the things that a banker dreams of in a borrower.  Assets, income, education, and good credit history.  I knew this, because I had read tons of books on the subject while preparing for my future real estate investing career.

Well, everything was going perfectly until my loan officer hit a snag.  (My age.)  He said everything was perfect, but the bank's board wanted to know how a kid of 22 came to have such assets.  I was a little perturbed at the idea of my age being a factor, though looking back I can see why.  The issue was quickly dismissed and the loan was approved, but keep in mind that being young will send up a red flare in lenders' eyes.

That aside, the best thing  young person can do now is look to the future, educate yourself, and create a credit file. Banks get scared when they pull your credit and nothing is there.


Back in the beginning, I studied several credit building techniques and here are the steps I took as soon as I turned 18.

My first endeavor was to get a bank loan.  I believe that Carleton Sheets taught this technique in some of his courses, but I read it long before he appeared on late night TV.  The idea has been around for quite some time.

I had $3000 saved up and took it  to three different banks.   I deposited $1000 into a 12-month certificate-of-deposit (cd) at each bank.  Then I went back to each of the banks about a week or two later and applied for a $1000 loan, pledging my cd's as collateral.

NOTE: Before putting your money into a CD, ask the bank what is the smallest loan they will make. Some might do as little as $500, but most will be $1000 to $2000.

If they asked what I wanted the money for, I told them "I'm just starting out and want to establish credit at YOUR bank".  Now I had $3000 in cd's, $3000 in borrowed cash, and $3000 in debt.  I used the borrowed cash to repay the loans, which only cost me 1% interest above the cd rate.  So if the cd paid me 4%, my loan would cost me 5%.  I was paying for the privilege of building credit.

Continue to Part 2

Copyright 2006 The Lazy Mentor

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