can you use a checking account as a loan refrence?

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airbikecop
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10 Dec 2005, 1:04 am

Just wondering, because damn I'd be able to get a car loan... but not right now.

Some girl at work got a brand new Ford Focus (why not get a better used car for that price, really?!) And she said she has perfect credit through her checking account. With her luck, she'll only have the car six months.

A few more years, and a new Dodge Challenger will be in my drive way. Granted it comes out 8) and I'll have a nice down payment on a base model... Just six grand to go.



Larval
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10 Dec 2005, 9:33 am

Not sure if it would count as a loan reference since it's not really a loan - it is your own money.

But yes checking accounts can be used to build up credit.

Credit cards may count as loan references (since they work on borrowed money) but I'm not really sure about this either.

If you want loan references I'd recommend taking out a small (few hundred $$$) bank loan for "new furniture" or something and then slowly pay it back. Do this a few times (borrowing more money each time of course) and always making deadlines to pay it back will help build up your credit fast. Assuming you don't default that is. Defaulting is bad. :/



larsenjw92286
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10 Dec 2005, 11:10 am

My simple answer: No!


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ridgerider
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10 Dec 2005, 12:47 pm

Good credit is mostly based on being able to demonstrate the ability to make repayments over a period of time. A checking account per se is not going to help prove that, tho if you overdraft it can be a negative.

Years ago, the good way was to save up some money, and put it in a CD (the savings account kind, not the music one. Heh heh.) . Then borrow the same amount of money on a 24 month loan using the CD as collateral. Then take the borrowed money, open a second CD in a bank that does secured credit cards. They will give you a credit limit up to the amount in the CD. Every month charge just a little bit on the credit card and pay off the full balance every month.

If you have the discipline to do this, after 2 years you will have an excellent credit rating. Even after one year you may start getting barraged by credit card offers. You will also have double the money you started with, as paying off the loan amounts to regulated savings. If you started with $500 originally, when the 2 CDs mature (which you would have set up as 2 year CDs) you will now have a $1000 for a down payment on a car and excellent credit.

Being late or missing a payment will of course negate this. But that is what they want to see - that you have the discipline to keep it together. So don't get sucked in after a year, get a lot of credit cards, and run them up. That can hurt you.

Nowadays, it may be simpler. They hand out credit like candy anymore. Maybe you only need to set it up for one year. When you get an unsecured credit card, you could cancel the secured one, take the money from the CD that secured it, and use it to pay off the original loan.

I just know that in the past this was a good formula. Maybe even see if you could start with a $200 loan if money is tight.

Just remember the old adage - credit is more important than money. If the choice is between being broke or paying your monthlies, pay the monthlies.


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ridgerider
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10 Dec 2005, 1:15 pm

Not to obsess, but..

I just did the calculations. To save up $500 over a year, you would need to save :

$41.67 a month.

If they charged a $50 origination fee for the loan, and added it it to the amount due, at 10% over 24 months your monthly payment to repay the loan would be:

$ 25.38.

So you could start the plan in a year, and as a reward now have a lower monthly amount to save, plus after 2 years have $1000 (plus a wee bit of interest which helps offset the loan cost).

If you continued to save the $41.67 - 25.38 (for the loan payment) for the 2 years, you would also have $390.96 saved up for insurance.


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