Suggestions for reestablishing credit include these recommendations:
Use a personal savings account as collateral for an installment
loan. Prompt repayment of at least six months will indicate
responsibility.
Make a larger down payment than required to indicate
an interest in a purchase or use collateral. Those with very
little credit or a questionable credit history might use a paid-off
car, land rental property, stocks, CDs or other savings as security
for a loan. Creditors are more willing to take a risk when the
consumer has a vested interest.
Find a co-signer. A co-signer is someone who will guarantee
that the note will be paid if the borrower does not pay. The
co-signer must have a good credit history and qualify for the
loan as if he or she was the original applicant. **Caution** the
borrower's payment history will be reflected on both credit reports.
Discuss with a major department store getting a credit
card with a minimal limit until payment history proves worthiness
of an increased limit.
Have merchandise financed through a dealer or store where
there is collateral for the item.
Avoid rental companies that advertise reestablishment of
credit by renting merchandise. It is not uncommon for the
required weekly payment to increase the cost of the merchandise
two or three times.
Prepare to pay a higher interest rate. Financing vehicles
or other large-ticket items may require that the borrower pay
a much higher interest rate due to the increased risk to the
financing company.
Have a checking and/or savings account. Many credit
applications request banking information. Lenders want to be
able to research the borrower's handling of daily finances.
Apply for a secured credit card. Some banks offer major
credit cards using a savings account as collateral. They may
have a high interest rate or annual fee, so caution should be
used in carrying balances over from month to month.
Consider payroll-deducted loans of automatic bank drafts. While
these methods of payment are not "security" for a loan, credit
unions and banks may be more willing to extend credit if these
methods are used. This is particularly true if the borrower has
a long employment history and a good pay history on previous
loans.
The above information should be understood to be a general discussion
of the subject matter and DOES NOT constitute a legal option
about situation. For further information please consult a qualified
attorney.
