I can't get no credit respect

March 30, 2006 8:52 AM

How can I Build Credit Quickly? And will taking a small loan out and paying it off way ahead of schedule be good or bad for my credit score?

I've read this thread http://ask.metafilter.com/mefi/16847 but I've still got some very specific questions.

So this July I bought a $250,000 house with a friend. I'm 23, he's 28. We went through a complete idiot to get our mortgage (he had several references but he definitely was an idiot). The plan was to have the loan in 3 peoples names: Me, my investment partner, and my father. Both my father and my partner have great credit scores. I had no credit score. After the dust settled from the worst mortgage process in history, the loan turned out to be in just my father and my partners names. The mortgage agent ended up paying us $900 because of how bad a job he did.

We want to refinance the loan, and hopefully just have it in me and my partners names. I have the bank statements that can show I paid my 'rent' on time every month and I have a good paying job.

I got a credit card and have been paying on it on time (and ahead of time) for 6 months.

What can I do to quickly build a strong enough credit report that I can put my name on this loan?

I work for a small finance company that can give me short-term small loans (with ridiculous high interest rates). Is it a bad idea to take out a $2,000 loan with an 18% interest rate, pay it off within 3 months (imagine the term is 6 months or 12 months). I want the money to replace the engine on my boat anyways (summers here, and I could wait and save up the money and miss half the season, and i don't like dipping into my savings).

I would be very thankful for any input.

posted by ZackTM to work & money (14 comments total)

There's a whole board dedicated to this topic, fyi.
posted by zek at 8:56 AM on March 30, 2006

I'm not sure paying it off early makes any difference at all. One thing that dings your credit score is multiple credit applications so watch out for that.

Not everything is judged on your score. Lenders also look at your *behavior*.

For example, I have a low credit score because I don't have much history in this country. However I have big line of credit which I don't use. I am generally approved instantly for credit.

Having credit available to you which you aren't using, having no or very few late payments, and no defaults is a big plus. They will also look very closely at your ratio (ie how much of your income will be spent on the loan).

Finding a good broker or a good bank is half the battle. In Canada I heartily recommend TD Canada Trust and Mortgage Intelligence.
posted by unSane at 8:58 AM on March 30, 2006

Length of time you've had open accounts in good standing is part of the calculation of credit score. I'm not sure how big a part.
posted by OmieWise at 8:59 AM on March 30, 2006

I'm not going to speculate on whether this is a good idea or not. However, it looks like you could borrow the same amount of money for much less on Prosper.com (which does report to credit agencies). I don't think it matters if you pay off the loan early - just that you were approved for the loan and perform as agreed.
posted by mullacc at 9:00 AM on March 30, 2006

That prosper.com site is pretty sweet, does anyone know how credible and reliable it is?
posted by ZackTM at 9:24 AM on March 30, 2006

ZackTM: For whatever it's worth, their investors are some of the best names in the business. Accel Partners, Fidelity Ventures, Benchmark Capital and Omidyar Network (Pierre Omidyar's non-profit & for-profit VC firm). Bob Kagle of Benchmark is, according to this article, lending out $100k of his own money through the site.
posted by mullacc at 9:45 AM on March 30, 2006

And, I can't believe I forgot this, here's the FPP on Prosper.
posted by mullacc at 9:46 AM on March 30, 2006

I am 26 and in the process of getting a mortgage. I have excellent credit (above 750). The vast majority of negative remarks on my credit report pertained to "insufficient credit history"- and I've had a credit card since I was 19. Given what I know about my own credit, I don't see how it's possible for you to get a sufficient credit history in just a few months.

Have you even gotten a credit score?
posted by elisabeth r at 9:49 AM on March 30, 2006

There is no way to build up sufficient credit score in 3 months. The things you are doing are all great, and will eventually lead to a good credit score if managed diligently, but you can't have a great credit score over night. I would even venture to say that applying for "too much" credit over a short period of time hurts you. All of these things you have talked about require pulling your credit history, every time your history is pulled its a ding against your score, a number of pulls over a short period of time is actually a red flag for lenders.
posted by HoldFast at 10:54 AM on March 30, 2006

Yeah, the main thing is to build up good credit as quickly as possible. My score is 678 (poor/fair). If 'as quickly as possible' is the same thing as 2 years of faithful paying, then so be it. But I am curious about any short cuts.
posted by ZackTM at 11:36 AM on March 30, 2006

I've no idea about how credit is scored in the US, but I had a shock here in the UK when I tried to apply for a new credit card and was turned down because I had no credit rating. Not bad credit - literally zero rating, neither good nor bad. I've had one credit card for probably 10 years, and I've always paid it off. Consequently credit reference agencies (Experian etc) don't know anything about it. I paid the nominal charge of £2 to get my basic credit report, and it was practically blank. You must be able to do the same.

Anyway, in a brief phone conversation the nice lady at Experian gave me a tip: start an account with any well-established company that offers credit. Over here we have catalogue shops such as Argos and Littlewoods. She reckoned if I opened an account with them and kept it in the black it would show up with Experian. The same might work with store cards (although be careful, the rates of interest are hideous).

I suppose the logical extension of my having a card but no credit rating would be that, in order to get some form of rating I should rack up a small amount of "bad debt" and clear it immediately. Perhaps cancel my credit card repayments until the bank sends a nasty letter. I've no idea if this would work or if it's a good idea. Actually it seems like a really bad idea :-) But then, I still don't have a good credit rating.
posted by ajp at 3:21 PM on March 30, 2006

I know somebody who took out a $284,000 mortgage by herself with less than a year of US credit history. (American lenders do not check with other countries to get a consolidated history).

Here's a short list of things that helped:
- lender was a credit union
- credit union was particularly well-known for helping foreigners, and was also well-known for being kind to employees of the borrower's employer
- the borrower had three bank accounts and a credit card through the credit union
- the borrower's pay check was direct deposited into the checking account, so a full history of income was available
- the borrower had a huge downpayment (20% in cash, banked at credit union) and had no other debt besides the one credit card, which was paid in full each month
- only other US payments were rent (to a regular guy, not a megacorp), phone, utilities

the interest rate may not have been the lowest going, but it was a hassle-free experience getting the loan. Find a credit union, bank with them for a while, then refinance in a year.
posted by crazycanuck at 4:05 PM on March 30, 2006

Zack, is anyone telling you that you don't qualify? Some will say that no credit history is worse than a bad history. Don't buy into that thinking. Make some phone calls and explain the situ. The only drawback that may occur is that you might not get the exact interest rate or deal that you want. (But I doubt it seeing as how you have three investors involved.)

Frankly, your case sounds strong and you shouldn't have any trouble refi'ing.
posted by snsranch at 5:29 PM on March 30, 2006

get put on someone elses card as an authorized user on a card thats been around ahile, your average age and score will jump up.
posted by Izzmeister at 8:07 PM on March 30, 2006