Three loans, three banks, three months! For fast track credit building, you will need to spend a little money. First, find three local banks or any size that report their accounts to a credit agency. Go ahead and tell the banker that you are looking to build credit for yourself or your business.
Take some amount of money—as little as $1,000 will suffice. Deposit that money into a three month CD at Bank #1 and take out a line of credit protected by the CD. Banks will regularly make this transaction, since they have a totally secured loan at this point. T
Take the $1000 you borrowed and go to Bank #2 and do the same thing. Repeat the procedure at Bank #3.
You can do this for as many banks as you can afford the interest payment on for those three months, in addition to any loan fees you are required to pay. Make certain that none of these loans has a prepayment penalty. Lastly, deposit the money into a savings account and don’t touch it. Spend three months paying the bill on these loans. Some say that making triple the monthly payment will develop your credit faster, but a single payment is adequate.
At the end of the three months, withdraw your $1,000 from the savings account and use it to pay off the first loan, and then cash out the CD. Take that money to the second bank and repeat the process. You now have three satisfactory positive credit accounts on your credit report. While this is a powerful and proven method for rapidly growing credit, there are a small number of drawbacks.
First, it will cost you money. Your secured loans will have an interest rate between 5-10% and you’ll be paying that three times, or 15-30% annual interest. Since you are using this strategy for at least three months, you could be paying $300 to develop your credit.
The second drawback is in using the CD to secure the loan. Although the bank will like this better than a passbook savings, a CD does have a mechanical auto rollover provision. If you don’t liquidate one of the CDs along the chain in time, you may not have the funds to pay off the loan and incur the interest for a lot longer period of time. With accurately timing the accounts, you will completely mitigate this risk.