'The good news is you don't have a bad credit score, the bad news is that you dont have a credit score

October 14, 2009 7:17 AM

Will a bank (personal) loan help my credit score? I find myself in a unusual position. 45 years old with 3 bad marks on my credit report. I recently tried to buy a home and the mortgage broker said 'The good news is you don't have a bad credit score, the bad news is that you dont have a credit score". Now, we have some big medical bills I want to knock out before those turn bad and figured a bank loan would be the best of both worlds. Pay off the bills and build credit...

I learned at an early age that credit cards were evil and have totally avoided them for the past 20 years. Dad, being the nice guy he is said "so you are buying a new car? I'll pay for it and you pay me back. that way you don't have to pay interest or deal with the banks". While his intentions were good, that seems to have really hurt my credit.

Bottom line, if we can find a bank that will let him co-sign a personal loan for me, will that help raise my credit score? Or is it bank dependent if they report to the agencies? (and yes, I've tried all the usual routes out of dispiration to rebuild credit... department store credit cards, gas cards etc etc. nobody wants to give credit to someone my age with zero credit history...

posted by er1c to work & money (8 comments total)

Will a bank (personal) loan help my credit score?

Yes, every month that you are current will help boost your score, and as time goes by your length of credit history will also go up. The exact algorithm used to calculate your FICO score is a secret, but there are some general details about it here.

Once your score gets decent enough to get a credit card, I would suggest getting one and just destroying the card. As time goes by, your score will improve even though you're just letting the account sit there and not paying any interest. Of course you'll need a card with no annual fee for that to make sense, and there is a temptation to use the card if money gets tight, but it's the easiest way to build up a high credit rating.
posted by burnmp3s at 7:33 AM on October 14

From my experience, it helps some, but they also look at what kind of loans you've had in the past. I was denied a car loan refinancing this summer because I didn't have a) a mortgage already and/or b) a revolving (i.e. credit card) account.
posted by ArgentCorvid at 7:35 AM on October 14

I was in a similar situation. I don't know if the option exists with in the United States but I took $1000 into the bank to establish a "secured line of credit" (basically a Visa card with a $1000 limit, guaranteed by my $1000).

For each year the bank holds on to that $1000, you get interest paid on it, and the credit reporting works the same as if it had been a 'real' credit card. At the end of three years, I got my money back, plus interest, and was then offered more than enough unsecured credit to ruin my life if mismanaged.

It might be small potatoes compared to home buying, but hopefully it'll help.
posted by Doug Stewart at 7:39 AM on October 14

Doug Stewart is right. You want to go to a bank and get a secured card to start building up credit. I avoided credit cards in college, and after graduation the only thing anyone would give me was a secured card. It's now a few years later and I have perfectly normal credit.
posted by Blue Jello Elf at 7:47 AM on October 14

(Disclosure: Though I'm also a longstanding MeFi member, I work at Credit.com)

The bank will most likely report to the bureaus, but lenders don't necessarily report to ALL of the bureaus, so you might ask the loan officer specifically about that when you apply.

You can also find more advice about your specific situation by getting your Credit Report Card, which is a free tool we just launched to help people make sense of their personal credit history, reports and scores. I'm really proud of the service - it's designed to give people actionable advice about the next steps to take to manage credit and debt, and I think it might be very useful for you.
posted by judith at 10:31 AM on October 14 [2 favorites]

I just tried that Credit Report Card and I think it will help you target the areas for improvement. It gives a grade to each of the individual categories that make up your credit score and tells you why you have the grade you do and explains how to make it better. Mine also had a bit of blurb about which of the categories were the most important. It also gives you a range at each of the bureaus that your score falls into. If judith is taking feature requests it would have been nice to be able to save the scorecard in a PDF :-), but pretty useful for free.

(I have no relationship with credit.com (or Givewell))
posted by IanMorr at 1:39 PM on October 14

I am taking feature requests, thanks Ian!
posted by judith at 3:13 PM on October 14

The secured credit card advice misses the specific question. Yes, a personal or signature loan from your bank (or better yet, credit union) is perfect for this, and will build credit history. Far better to have a loan contract than to deal with agreements with various creditors, possible fees and extra interest, and possible collection activity. Just be diligent about making every payment on time, or you'll do more harm than good.

In general there are ways to build credit history without paying interest and fees, but in this case I think the other benefits are worth it.
posted by mad bomber what bombs at midnight at 4:54 PM on October 14