• How You Can Build a Better, Faster and More Dynamic Credit in less than 6 Months, Even with No Prior Credit History
• Knowing and Using Your Credit Rights
• Knowing Everything that Happens with Your Credit Records
• Protecting Your Credit Records --- Building a Cast-Iron Shield Against Invaders
• How You Can Deal with Credit Reporting Agencies, who are Arrogant and Nonchalant
• Creating an Entirely New Credit File --- How it Happens

------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Table of Contents

Chapter 1: Why You Must Use Credit and Keep a Good Credit Record

You Can't Always Have All the Cash You Need

It is Smart to Use Other People's Money

Sometimes Your Cash or Check Will Not Be Accepted

You Cannot be Trusted Without a Good Credit Record

You Need a Good Credit Record for Jobs and For Your Business

A Good Credit Record Ensures Better Credit Terms for You

Good Credit Gives You a VIP Status

Your Rights As A Consumer

What to Do If You Have Unjustly Been Denied Credit What Credit Grantors Need in Order to

Approve Your Credit How to Document Your Own Credit History if

You Have No Records with the Credit Bureaus

How to Establish a Reported Fabulous Credit History

in Less than 6 Months with Little or No Prior Credit

------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Your personal credit is perhaps one of your most important assets for your everyday personal survival, and it is indispensable for the prosperity of your small business. In the American culture, and indeed in reality, your personal credit history is a reflection of your personality. It establishes your identity and shows how you meet your payment obligations, and has become a tool necessary for evaluating your integrity. This applies not only when you seek a loan, but also when you apply for insurance, certain job positions, and a rental property to mention but a few.

For your small business operation, your personal credit history plays a very important role regardless of whether you run it as a sole-proprietorship, a partnership, a limited liability company or a corporation. Lenders and other businesses use it to determine your eligibility for a bank loan, SBA financing, venture capital financing, a lease deal, a credit card merchant account, and an Automatic Clearing House (ACH) billing capability, to mention yet but a few.

Unfortunately, a majority of adult Americans either do not have any or enough credit, or are having credit problems. If you are one of those that have built a good credit history, you come across situations that are sometimes beyond your control --- situations which threaten your credit history. Moreover, your credit history can never be too good. It can always be better and you can always take a better advantage of your good credit.

This manual hammers on your rights to credit -- car loans, mortgages, cash loans, business financing, etc.; shows you ways to work with banks and other lenders to get excellent deals; and how you can handle excessive debt.

Generally, we at Diversified Discount Buying Resources have tried to share with you, how you can prevent and control bad credit situations which is necessary for your peace of mind and dignity. We have also included very valuable information which you can use in restoring a damaged credit in a safe, legal and decisive way. You will also find very useful information on the much-talked-about credit repair.

At the end, in the Appendices section, this publication will present you with names, addresses and information on people, businesses, organizations and government departments that are ready to help you with most questions or problems which you may encounter as you deal with people and money.

_______________________________

------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our special appreciation equally goes to all companies and organizations that provided information and materials necessary for this publication.

We present a very special acknowledgment to the staff of the United States Office of Consumer Affairs and the Board of Governors of the Federal Reserve System.

------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------------------------------------

Chapter One

You Can't Always Have All the Cash You Need

It is Smart to Use Other People's Money

Sometimes Your Cash or Check Will Not Be Accepted

You Cannot be Trusted Without a Good Credit Record

You Need a Good Credit Record to Get Certain Jobs and For Your Business

A Good Credit Record Ensures Better Credit Terms for You

Good Credit Gives You a VIP Status

------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Being able to borrow money when you need it, and eventually paying-off every debt has been the way of survival in America for smart individuals, businesses and organizations. Yet some people say: "I pay cash for everything." If you are one of these people, think again. You may be missing something. Unless you can easily pay cash (real cash) for a $20,000 car, or boat or motorcycle, or a $250,000 house, or you have all the cash you need to open and grow your business to its full capacity, get some credit.

Some people say that they have "very strong principles." They say they do not want anything they cannot pay for. However, they do not usually mean to say that they do not need anything they cannot pay cash for. If they do, could it be that they are among the few Americans that have enough guaranteed cash reserve to pay for all their children's quality education; take care of any emergency cash situation that may come their way -- no matter how much it may be; and have taken their businesses to the highest possible height? If you are not one of these very rare and extremely fortunate people, you may want to increase your credit power. A strong dynamic credit will take you there.

You may not need credit today, but you certainly cannot say that about tomorrow. It is better that you have credit, but do not need it, than needing it and not having it.

It should not surprise you that many of the richest corporations, with all their money and financial experts, owe the most money to the banks and other financial institutions. Most of the richest people and companies who are now debt-free owed money at one point in time. Lenders are not money storehouses themselves. They make money by borrowing money and lending it out. They all realize the advantages of other people's money (OPM).

Think about America as a country. America is the richest nation in the world. America is a land that offers the greatest opportunities and is abundant with the good things of life, extending the highest possible standard of living to its inhabitants --- and the most fertile land for business. America has ironically owed the most money of all countries. Its amazing how money works.

In 1972, the national debt was $436 billion, up from $2.7 billion in 1865. America currently owes more than $5.4 trillion. It was projected that by the year 2002 when we were expected to have our first balanced budget in over 30 years, America would have owed over $6 trillion. This will still be the case, unless the debts are paid down as being proposed.

Does owing so much money make America the dumbest country in the world? Certainly not! Money should be used only as a means of achieving something. It does not have any substance in itself. Many people, businesses and countries have therefore, found it resourceful to use other people's money (OPM) for a good purpose.

True, individuals, companies and nations get ruined when they become slack and start to over-use, or depend too much on other people's money or when some vicissitudes overcome them. That is why you should exercise caution when you use other people's money. Like they say, "too much of anything is bad." Notwithstanding, the number of individuals, companies and nations that use healthy credit and avoid distress far exceeds those that do not. If you use sound wisdom, you too can benefit tremendously from other people's money.

There are certain products and services which you cannot buy with cash, no matter how much money you may have. For instance, it is extremely difficult to book a flight, rent a car, or a hotel room without a credit card. If you tell the attendant that you are paying cash or writing a check, you will look funny and out of touch with reality.

Moreover, because of the high numbers of bad checks written these days, many business are refusing checks unless they know you very well. In fact, many companies have adopted a policy of not accepting checks at all. This is because many responsible-looking people have written bad checks in the past. Consequently, most businesses including stores and supermarkets, will accept your check only after they have checked your credit history, along with checking if you have had incidents of writing bad checks, and issued you a "clearance card." Without such "clearance cards", they will not accept your checks.

Qualifying for certain services requires trust. And the way they see your trust-worthiness is to look at your credit records. Getting a new insurance policy is a good example. It does not matter whether it is automobile, home, business, life or health insurance, you cannot get an affordable insurance policy if you are not a reliable person. It is the procedure of most companies that without good credit, it is either impossible or extremely expensive for you to be issued a policy.

If you try to get a rental apartment, an office space, gas and electric service, a telephone line, a pager or a cellular phone, most providers will check your credit records to see how you have paid your bills in the past. If you had no credit records or if your credit history was bad, they will either refuse you or slam you with a heavy take-it-or-leave-it security deposit.

This is the reality: many companies see your credit records as a reflection of your character. In most cases without good credit which presents you as a trust-worthy person, you will not be able to get that rental property, rent that car or that hotel room, even with a handful of crisp green dollar bills or your well-designed checks, even if your checking account is overflowing. That new preferred low-cost insurance policy may also be out of your reach. You may not qualify. The fact is not that the rental company, hotel or insurance company thinks that your dollar bills or checks are no good, but most companies are extremely reserved when it comes to entrusting their property, utility service, car or hotel room, or an insurance policy with a person with no credit (or bad credit) --- somebody they feel they cannot trust.

If you have recently been in any of these situations, you will see that having some credit (good dynamic credit) in the United States has become a necessity, and not a choice. Without good credit, you are definitely not prepared for the reality of modern times, and you can be sure to be treated like a second class citizen, paying a second class citizen's price when you try to get certain products and services. Sometimes when you eventually get these services, you may actually pay more in additional charges (we-do-not-trust-you charges) than those interest rates that may have made you not to want to develop your credit (good credit).

These have become a reflection of the American society which, in this era of high technology, has simplified methods of paying for, and obtaining products and services. America has since become what many people now refer to as "a plastic society." The fact is that most businesses have legitimate reasons to trust you and your credit cards, more than they can trust you and your check book.

Notwithstanding how indispensable credit cards can be, they are the simplest forms of credit that are available to you. To build more trust, an experience with automobile loans, mortgages, property improvement loans, business loans, cash loans, or several other forms of credit will be helpful. Thank God for America. In America, you can get things that you need without the cash that you can never have.

Many employers will now check your credit history as a condition for your being hired or promoted. Many business will also check your credit history to know if you are the kind of person with whom they want to do business. Many individuals who might be considering entering a partnership with you might also wonder what your credit record looks like. In business also, your personal credit is a primary factor for loan considerations, even if you run it as a corporation.

They regard your credit records as a reflection of your honorability and decency. A good credit record presents you as a person who has established that he or she meets all his or her payment obligations -- somebody with good morals and a worthy character -- somebody that can be trusted. Conversely, they will look at you with skepticism if you do not have any credit record at all. In fact without a credit record you may appear to be sham while in actual sense, you may not be.

You may be a very good citizen who does not cheat on taxes. You may be very educated with one of the most-respected jobs or entrepreneurial ideas, and you may be a very good husband, wife or parent; never commits adultery or engages in domestic violence. In fact, you may be a truly dedicated, honest, church-going, drug-free and water-drinking person. You may have demonstrated the best example of decency to your neighbors. You may write a perfect business plan -- one that everybody is sure that it will shoot through the roof once you get adequate financing. However, many banks, lenders, and other organizations will be very apprehensive of you if you do not have any personal credit history.

It is very common for somebody who is over 25 years with no credit history to be referred to as "a ghost." They can even doubt the authenticity of your drivers license and social security number. When you buy a big ticket item like a car, motorcycle or boat and put down a lot of cash like $10,000.00 or more, better be prepared for some fatiguing explaining to do to the authorities.

Yet it is better for you not to have any credit history at all, than to have a negative credit history. With a bad credit history, you have unequivocally created a situation that presents you as an untrustworthy person --- somebody everybody should beware of. In America, it seems to work this way: show me your credit and I will tell you who you are.

It is quite true that even if you have no credit history or a bad one, you can still buy certain things on credit. For instance you can still get financing for a house, a car, a motorcycle and a boat. However, your interest rates will be much higher than a person with an excellent credit history. Whereas, that person gets an interest rate that may be as small as 7% for a car, you might be paying as much as 24% or even a higher interest rate as may be permitted in your state. You may also have to wait several days, weeks or even months before you can get approved. And whereas, a person with a good credit history may get financing at 6% for his or her mortgage with an instant approval, you may be paying as much as 15% with the same lender after a prolonged processing time.

Please see Appendix 2 and compare the amortization schedules of 4 loans with the same lender of the same amount ($12,000) and term (48 months), but with different interest rates (7.25%, 9.00%, 18% and 24%). Measure up your monthly payments and finance charges if you got the loan at a higher interest rate, against when you qualify for a lower interest rate.

Apart from having lower monthly payments and paying less in interest charges, the person with an excellent credit history may get by with little or no down-payment, while you will normally be required to cough out between 10% and 20% of the cost of the item you are financing. The reason why you must put down a lot of money is because the lenders will not be as relaxed with you as they will be with the person that has established a good credit record. Remember that they do not trust you. Thus, they will try to minimize their risk by having you put a lot of money upfront.

Status and recognition should never be your driving motives for building an excellent credit history. In real life however, you will command a lot respect if you have a good credit history. Such respect may be the difference between your getting or not getting certain little things that matter in life.

For instance, you gain some people's respect when you brandish your gold or platinum credit card at the airport, in the supermarket, at the hotel check-in lobby, in a restaurant or anywhere. Some people actually go out their way to impress their important dates or prospective business partners, clients or associates with a gold or platinum Visa or Mastercard. Sometimes, they will stylishly flip open their wallets so people around them can see those cards. And it works! A gold American Express card commands an even greater respect having been regarded the card for executives. Truly, you can only earn those gold and platinum cards with good financial management as demonstrated by your excellent credit record.

In the restaurant, hotel, airport, auto rental office or supermarket, you may get help that nobody would have otherwise cared to give you. We live in a material world --- and you can't change it.

------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Chapter Two

Your Rights As A Consumer

What to Do If You Have Unjustly Been Denied Credit

What Credit Grantors Need in Order to Approve Your Credit

How to Document Your Own Credit History if You Have No Records with the Credit Bureaus

How to Establish a Reported Fabulous Credit History in Less than 6 Months with Little or No Prior Credit

------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

• Comptroller of the Currency

Compliance Management

250 E Street, SW, Mail Stop 7-7

Washington, DC 20219

(202) 874-4820

(Regulates banks with "National" in the name or "NA" after the name)

• Federal Deposit Insurance Corporation (FDIC) Office of Consumer Affairs

550 17th Street, NW Washington, DC 20456

(202) 898-3536 or 1-800-934-3342

• Office of Thrift Supervision

Division of Consumer and Civil Rights

Office of Community Investment

1700 G Street, NW

Washington, DC 20552

(202) 906-6237 or 1-800-842-6929

• National Credit Union Administration

Office of Public and Congressional Affairs

1775 Duke Street

Alexandria, VA 22314-3428

(703) 518-6330

• Federal Trade Commission (FTC)

Division of Credit Practices

Bureau of Consumer Protection

Washington, DC 20580

(202) 326-3758

If you are denied credit for any reason, the credit-grantor is obliged to communicate with you in writing, giving you the specific reasons why you have been turned down. That lender is also required to disclose the federal office you should contact if you feel that they have discriminated against you. Usually this information appears at the bottom of the letter in very fine print. Be sure to read it carefully, and to contact the federal agency disclosed in that letter. Yet your rights do not stop at filing a complaint with the federal government office. You may also file a civil suit for:

• Up to $10,000.00 for Actual Damages and
• Up to $500,000.00 for Class Action Law Suits.

Depending upon the severity of the perceived discrimination, you can also file a civil suit for bigger amounts.

• Your Identity
• Your Legal Status
• Your Place of Residence
• Your Residence Stability

Establishing your identity to the credit-grantor is very important when you apply for credit. There is no

clearer way of saying this, than that the credit grantor wants to make sure that you who are who you say you are --- and no one else, and that no other person can successfully claim your identity.

They will normally ask for your full name (including names you have used in the past), your date of birth and your social security number. Some lenders may also ask for your mothers maiden name, a copy of your drivers license (or the number of your drivers license). In fact, some lenders go as far as verifying your drivers license and your social security number to ensure your proper identity.

A credit contract makes you enter a very significant financial obligation. Therefore your legal status is paramount when you apply for credit. If you are a minor or a physically or mentally impaired person who cannot enter a legal contract, you may find it difficult to obtain credit.

Credit grantors will not normally put themselves in a position to incur any possible loss that may occur if you default and cannot be sued because of restrictions imposed by your legal status.

For most credit programs granted by financial institutions within the United States, there are no restrictions with regard to your state or county of residence. Thus, you may live in the state of Connecticut and get a credit card, a car loan, mortgage or some other form of credit from a bank in Mississippi. This is because the federal and state laws that govern banking and credit are contiguous only within the United States and its territories.

However, if you live in a different country, banking laws and practices in your country of residence may be inapplicable to the United States. Similarly, United States laws which United States lenders follow may be invalid in your country of residence. Hence, if you default, it will be difficult for the United States credit grantor to take any legal action to recover their money, in your country of residence or in the United States.

Consequently, it is unlikely that a bank in the United States will grant you credit if you live outside the United States and its territories. The only exception here is when you seek business financing where many banks, lenders and investors extend credit to businesses outside the U.S.

If you are a foreign national living in the United States without a permanent resident (green card) status, you may also have a problem getting consumer credit. Some lenders require that you should either be a citizen of the United States or be admitted by the Immigration and Naturalization Service (INS) to live and work permanently in the United States. Most lenders however, do not ask what your immigration status is, but you will have a significant problem if you seek credit from a lender that demands information on your immigration status, and you are not a permanent resident or a naturalized citizen.

This policy does not break the federal Equal Credit Opportunity Act. The credit-grantor has not discriminated against you because of your nationality. Remember, you are deemed to be living in the United States only temporarily. Many lenders will view you in the same light as somebody living in a foreign country where different banking laws and legal systems may exist. Thus, they may regard you as hard-to-reach, if you should skip.

One of the things that credit grantors will like to see is that you have maintained a reasonable degree of stability in residence.

True, everybody moves at one point in time or another, but moving too frequently might be regarded as a reflection of other uncertainties that may be present in your life. Believing that you may not be fully settled, the lending institution may classify you as "high risk."

Most credit-grantors are very uncomfortable with credit applicants who have not lived in the address from where they are applying for up to, at least, two years. In fact some lenders have a strict policy of not granting credit to anybody who has not lived in his or her present (or immediate past) address, and maintained a telephone number for two or more years.

Occasionally, you may find lenders that will demand proof of residence. Utility bills, lease or mortgage agreements easily satisfy this requirement. Post office boxes are no good for your address with lenders. One of the reasons is that you may have a post office box in Los Angeles, CA while living in Atlanta, GA. Lenders usually demand a physical address in spite of the fact that some of them will accept to send your monthly statements and other correspondence to your post office box. Even in such cases, they still ask for, and keep your physical address on file.

Having scaled through the initial huddles we discussed above, the lender now begins a closer look at your personality. You must have heard of the term:

the "Four (4) Cs of Credit." These are traits a credit-grantor will look for in you, when they consider your application for credit.

The "Four (4) Cs of Credit" are as follows:

• Your Character
• Your Capital
• Your Capacity
• Your Collateral

Granting of credit relies largely upon trust. For this reason, you must show the financial institution why they should trust you. The credit-grantor will try to see that you have good moral qualities before they can extend credit to you. They will be certain that you meet your obligations by making payments when they become due.

How much money you make is not a factor in determining your character in this case. For example, some wealthy people are either slack or simply unwilling to pay their bills. On the other hand, some people who do not make a lot of money manage their finances wisely. They keep their bills within their ability to pay, and pay all their bills when they become due. Credit-grantors will choose to deal with you if you belong to this category of people than if you are rich, but do not pay your bills on time.

Many times, your credit report will be the only tool your potential creditor will use in determining your character. They will look into your credit history whether or not you have met other criteria for the particular credit you are seeking.

When your credit history is pulled, the information it contains is matched with the information you provided on the credit application form. Usually, the lender will compare the basic items on your application with what is contained in your credit records. These items among others, are your name, your social security number, your date of birth, your address, the length of time you have been in that address, your profession, your place of employment and how long you have been on the job.

Any contradiction in these items raises initial doubts in the mind the officer who is processing your application. This is the first test of your frankness. So you must be careful to give correct and consistent information when you fill out credit applications.

Your credit history also shows the manner of payment of your existing or past credit accounts. This helps the credit grantor to further establish your integrity and ethics. The lenders see it this way: if your credit records show that you have paid your past debts, or have been paying your current credit obligations, in a prudent manner, chances are that you will also pay the credit which you are seeking in the same manner. Conversely, if you have exhibited a history of tardiness or default in making your payments, it will be hard for the lender to believe that you will pay your credit bills when they become due. In fact it is unlikely that a regular credit grantor will approve your request for credit if they notice serious delinquencies in your credit records.

There are however, special cases where the credit grantor can give you credit in spite of serious credit problems which you may have had. There are more discussions about your credit records in Chapter 3.

When you try to procure a huge loan, regardless of the fact that you may have a good credit history, the lender can still conduct a more far-reaching investigation on your character. They can among other things, contact some of your personal and professional references for an interview about your personality.

The amount of capital you have is critical when you apply for certain types of loan. Usually when you apply for a major loan, the lender will ask for a personal financial statement from you, which measures your assets against your liabilities.

This will be an attempt to determine your "net worth" which could be positive or negative. A positive "net worth" means that your assets exceed your liabilities in value. On the other hand, negative "net worth" means that your liabilities exceed your assets.

Your assets include among other things, all your valuable belongings such as:

• Houses
• Furniture
• Automobiles
• Boats
• Cash
• Stocks and Bonds
• Retirement Accounts
• Amount of Life Insurance
• Other Investments that can be Liquidated

Your liabilities comprise mainly of:

• House Payments
• Car Payments
• Insurance Payments
• Utilities
• Medical Expenses
• Taxes
• The Balance on all Your Debts
• Other Financial Obligations

Naturally, credit-grantors will be more comfortable granting you credit if they see that you have a positive "net worth" which implies that you have enough resources to overcome a financial misadventure.

When a lender considers your application for credit, the prime consideration is: can you -- the borrower pay this debt? To determine your ability to pay, your lender must be sure that you have enough income, and have been getting that income for quite some time prior to the day you apply for the credit.

Your professional traits may also be significant when you apply for credit. Those professions that tend to be more stable like executives and professionals tend to fair better with lenders, than a blue collar worker. Similarly, a skilled worker might get a more favorable consideration than somebody with no skills. Credit grantors have extreme reservations with people whose professions are hard to classify, and with highly unstable people like temporary workers, bar-tenders, waiters and waitresses, and enlisted military personnel.

Regardless of your profession, your lender will also ask how much your income is, and how long you have had that source of income. Your lender might even ask for proof of your income in form of your recent pay stubs, tax papers, stock certificates, or any other item that may show your income. Usually, most lenders require that you have had that source of income for at least, two consecutive years, prior to your date of application for the credit.

If the credit you are seeking is for business, your lender will like to see that the business has had a reasonable degree of income stability or at least that your business has a profit potential. Businesses that have been profitable for 2 to 3 years will usually stand a better chance of approval than a new business or one that been losing money. As with personal loans, your lenders may want to see bank statements, financial reports and tax papers for your business.

In the case of a new business, they may also require your personal financial papers since you will be the guarantor. In addition, they will like to see your business plan in order to ascertain your chances of success. They may even be stricter if the loan that you seek is not secured, putting their money at a bigger risk.

Another factor your lender may use in determining your capacity to pay the debt is to measure your current debts against your income --- your debt-to-income ratio. Naturally, if you already owe a lot of money to other lenders, your debt-to-income ratio may be high, and you may stand less chance of being approved. Individual lenders have their own standards for measuring your debt-to-income ratio. If you already have heavy outstanding balance(s) on existing credit accounts, it is advised that you contact a lender for more specific information on their own debt-to-income standards, before you apply.

When you seek certain loans, the lender will usually ask that you place certain items of value as security for the loan. The most common items that are accepted and placed as collateral are landed properties (such as houses) and cars with reasonable equity. Also when you seek a mortgage, the house you are buying automatically becomes a collateral. This also applies when you get a loan for an automobile or a boat where you will be required to give a Security Interest in the vehicle being financed. That security interest, stated in the Truth in Lending disclosure gives your lender the right to seize the automobile or boat, in case of a default. They will usually sell them in order to recover the debt.

There is no limitation to what you can place as a collateral for a loan as long as the lender feels that they can recover a reasonable part of the loan balance when that item is sold. There will be a more detailed description of collateral and how they work when we discus repossessions and foreclosures in later parts of this guidebook.

In addition to your personality traits, your lender will consider the purpose for which the money is going to be used.

Certain credit programs are for explicit purposes. Moreover, most credit-grantors have their specific interests and areas of operation. You must therefore be applying for the type of credit that a lender is interested in offering. For instance, you must be applying for a mortgage with a mortgage lender. Similarly, you must be applying for venture capital financing from a venture capital company.

Even after a credit-grantor is satisfied that the type of credit you are seeking falls within their interests, they will try to ascertain that the proceeds from the credit being requested by you, is going to be applied only for the specified purpose. For example, an auto loan company will establish that a loan they granted for an automobile is used to pay only for an automobile precisely pointed out on the credit contract. When these types of specified loans are approved, the lender directly pays the seller of the product or service.

Before lenders approve any credit or loan for a specific product or service which falls within their area of operation, they seriously examine the level of risk they are taking for financing that particular project, product or service. They ask themselves whether they are about to make a wise investment. For example, you may find it more difficult to get an approval for a $45,000.00 loan for a house located in a run-down neighborhood than getting a loan for $250,000.00 house which is located in a progressive neighborhood. Similarly, a lender sees financing a used three-year-old automobile as a bigger risk than financing a brand new automobile.

The reason is because when the borrower defaults, the lender will have the right to acquire the house or car that was financed and sell it. Thus, they will prefer to finance an item that will be more appealing to buyers, should the item have to be resold in the future. The lender will stand a better chance of recovering a bigger percentage of the more costly house in the progressive area than the house located in the dilapidated neighborhood. Why? Because the property in the progressive area might be going up in value, while the one in the bad neighborhood may be going down. Similarly, the brand new automobile bought the same time with a used three-year old automobile would have depreciated slower than the used vehicle.

A lender also tries to determine how constructive the loan that you seek is, before making a decision of granting or refusing the credit. All things being equal, it might be easier to get a loan for a new set of furniture in your house than for a vacation to Hawaii or Florida. Generally, credit grantors prefer to lend money for tangible items and usually ask for reasonable amounts of downpayment to help minimize their risk in case of default.

However, certain types of credit are for general purposes. You can use a credit card or a line of credit and most personal loans to pay for any product or service of your choice, up to your available credit or the loan amount. When you apply for this type of credit or loan, the lending institution does not usually ask what purpose the credit or loan is for. An exception to this may be a business line of credit or other business loans where the lender will consider among other things, the nature and organization of your business, and the level of risk that particular business venture involves, before credit can be granted.

Many people charge that numerous lending institutions have added "Color" as another "C" of credit, making it the concealed, but widely used 5th "C" of credit. They allege that those lenders simply refuse to extend meaningful credit opportunities to people outside of a certain color, or that the lending institutions believe that people of a particular color have a higher propensity to default than those of the preferred color.

Though only few people openly accept the presence of racism in corporate America, it is a fact. However, as we discussed earlier, the federal Equal Credit Opportunity Act expressly forbids a lender from discriminating against you - a credit applicant on the basis of your color, race or national origin. In spite of the stiff penalties provided by this law, some people affirm that they have been denied credit because of their color.

Unfortunately, even when you think that your color has been used to prevent you from having access to a credit program, it might be difficult to prove in a law court since, most times, a credit-grantor can always find a reason, other than your color, race or nationality, why your credit application must be denied.

Competent attorneys nonetheless, have their own way of proving racism when they have an inkling that it has happened. A lender is therefore taking the expensive risk of a court action and huge penalties, by denying you credit because of your color, race or nationality. We suggest that you promptly consult your attorney if you have reasons to believe that racism has played a part in your being denied credit.

Make some kind of deposit in a bank and then turn back and ask for a loan. Many banks offer secured credit cards which can be helpful to you in certain cases, but getting a loan instead of a credit card might be more helpful to you. This is because loans are rated as higher forms of credit than credit cards. Moreover, most of the time, a secured credit card account will be reported to credit bureaus as a secured. When a lender sees secured in any credit card account that you may have in your records, that lender will most likely not regard it as pure credit, and will give you the same consideration as somebody who does not have any credit at all. In contrast, this is not the same with a secured loan account.

Therefore, it is better for you to get a secured loan rather than a secured credit card. Moreover, this unusual approach can make the loan officer to notice you, and create a strong possibility of building a closer relationship between you and the lender. This close relationship can be an asset in your future credit pursuits.

Do some research on your local banks and find out the minimum installment loan amounts they can grant. Most banks have a minimum installment loan amount of $1,000.00. That means that with that bank, you cannot borrow less than $1,000.00. There are however banks that may have a minimum of $500.00 or $5,000.00.

Select two banks with the least minimum amounts of installment loans, from your list of local banks, and open up money market accounts in these two banks. Open up the money market accounts with at least the minimum amounts of installment loans that they make. This is because you will be going back to those banks to get installment loans of no more than you have on deposit. Money market accounts are like savings accounts which are interest-bearing and insured by the Federal Deposit Insurance Corporation (FDIC). So you don't have any noteworthy risk of losing your money.

However, the interest the money market accounts will bear is not your primary purpose of opening the accounts. Your purpose is to use them as collateral so you can start building your credit.

Try not to make any withdrawals from those money market accounts, and if you do, make sure you leave a balance that is equal to the minimum amount of installment loans that each of the banks makes. Between two and four weeks after you have opened those money market accounts, return to the loan officer of each of those banks. Ask them for an installment loan equal to the amount of money you have in your money market accounts. Since you know they will most likely deny you as you have no established credit at this time, propose that they use the money you have in the money market accounts as collateral. After all, that was why you made the deposits in the first place.

This way, you have made them an offer they will find hard to refuse. First of all, they have your money right in their own banks. They have control over your money market accounts, and will hold at least, the amount of money that you borrowed, until your loans are fully paid. Thus, they are certain they will get their money back even if you do not repay the loans. Therefore, even though you have no credit history, the bank officers will know that their risk is minimal. Secondly, the banks are in the business of making money. They will earn more interest on the money that you will borrow than they will pay on the money you have on deposit. You can point these facts out to the loan officers.

It is very important that the installment loans that you are taking should be for at least six months, so the banks can report it to the credit bureaus. Also, remember to negotiate an interest rate of no more than 3% over the interest rate the banks pay on your money market accounts. Hence, you will not have to pay a lot of money on interest charges.

Please remember that you must satisfy the other conditions which credit grantors stipulate, provided that such conditions are within the law, as we previously discussed. You must establish your identity, prove that you have an appropriate legal status, show that your place of residence is within the contagious United States, have a fairly stable residential address, and a fairly stable income and source of income.

The only other issue which you may face, aside from having no credit history, is the purpose of the loan you are seeking. Be honest with the bank officials. Tell them you are trying to start building a credit history. They will be astonished by your creativity and may even offer useful suggestions to you. They will most likely approve your loan. Remember that banks look for ways of giving loans to people that pose minimal risks to them. Most loan officers also receive commissions for any loan they work. Thus, the loan officer knows that there will be something in it for him or her, and will want the loan approved just as badly as you do.

With the collateral you have provided, you pose an insignificant risk to them, and stand a very good chance of getting the loan. Moreover, even if this loan is reported as a secured account, it may be viewed in the same light as a borrower who collateralizes a loan with his or her house. It is most likely going to be seen as a more real credit than a secured credit card.

Having gotten the two loans, and received your repayment coupon book, usually before the first due date, you now have money to pay back the money you borrowed. Remember that you are trying to build good credit, and that having a good credit has a lot to do with your financial discipline. Thus, you are also training yourself on financial restraint. Do not use any part of the loan to do anything other than paying back the loans on time.

If for one reason or another, you are not able to pay back the loans as you agreed with the banks, it will be reported to the credit bureaus. Do not allow this to happen to you because you will find yourself in a worse credit situation than you were before you started. In fact, it is better not to have any credit at all, than to have bad credit record.

To minimize the temptation of spending the money you borrowed, go to another bank and open an account that bears interest. An interest-bearing checking account might be better, so you can write checks directly from that account to pay back the loans that you took.

Make your required monthly payments every two weeks, instead of every month. This way, you will pay those loans off in three months, and not in six months. You will also save a lot of money on interest charges. When the loans are paid off, they will show in your credit record as two paid accounts -- and these are very good for your records. They are excellent credit references. To be sure they are in your credit records, contact a credit bureau for a copy of your credit records about four weeks after you pay off the loans. Chapter 3 discusses your credit records and how to get a copy for yourself.

By the time that you pay off the loans, you may withdraw your money from the money market accounts. However, if you can do without the money that you have in those accounts for 2-3 weeks more, leave them there. Go back to the same banks that gave you the loans and apply for a smaller unsecured installment loan in one of the banks, and a credit card in the other bank. Chances are that you will also be approved and if you make your payments on time, you have established a good credit history for yourself in less than six months.

--------------------------------------------------------------------------------------------------------------------------------