How I Obtained A $30,000 Credit Line With A Bad Credit Score

by John Hoff on October 15, 2008

Monopoly Board Game
Your bank can help you build your empire.
Image by DavidDMuir

Today in the United States the economy sucks.

The term “credit squeeze” has been floating around lately and refers to the fact that banks are in so much trouble themselves that they have tightened their lending policies almost to the point where credit scores don’t matter.

Cash is king, yes, but there is a “queen” out there that is almost as good as cash.

What is it?

Trust.

Being that I deal a little in real estate, people sometimes ask me questions about how to improve their credit scores or what’s the best way to obtain a line of credit.

My answer has always been you need to build trust with a bank, preferably one you can physically walk into and meet with someone face-to-face. If you already have great credit with an out of state bank that’s ok too, continue building that credit and trust, but nothing beats being able to walk into a bank and getting to know the staff.

I bring this up because it has always been something I’ve said you need to do as a business owner and real estate investor and a couple weeks ago, my belief was put to the test.

Because of this poor real estate market, my credit score has basically been ruined; I made one bad investment which has trashed my credit and there’s little chance a bank would easily loan me money based off my credit score alone. But over the years I’ve gotten to know a few bankers at my banks of choice (yes I have a few) and I rarely can walk in and head for the teller window without waving hello at least twice to friendly faces.

This is also great for networking. Bankers are often times the first people to know when someone is starting a business needs a website or might be going into foreclosure. So networking with a bank and getting to know a banker or two is a very powerful tool you can use to find business and make a little money by solving people’s problems.

What Happened When I Met With My Banker

Personally, I’ve networked with a few banks and have a decent relationship going. A couple weeks ago my wife and I decided to transfer one of our business accounts over to another bank in order to simplify how we move our money around.

We sat down with the banker we know at that bank and opened a new business account. When she asked me if I’d like to apply for a line of credit I thought to myself this would be the first time that my somewhat recent tarnished credit score is going to hurt me. I wasn’t thinking about the good relationship I had built with this bank in the past.

She popped my information into her computer and within about 10 seconds I was approved for a $30,000 line of credit, no questions asked!

I joked with her and said, “Only $30k?”

She laughed and said “Well I can run your credit and see if we can get you some more.”

I of course declined as I didn’t want her discovering that my credit score has recently been lowered.

I think of a bank as a silent partner in just about everything I do. In the beginning they don’t know me, therefore they don’t trust me. However, over time as I build a good relationship with them they will begin to trust me and even bend a few of their rules to help me succeed.

So if you’re a business owner or are thinking of starting a business, realize one of the best first steps you can make is to start building relationships with the right people and other businesses.

Quick Tip To Build Trust & Credit With A Bank

To quickly build a decent credit history with a bank you could do the following. Find something you could use to obtain a loan for through your primary bank, like refinancing your car or something. Pay on it for the next 4 to 6 months and then pay off that loan with another bank’s loan (i.e. refinance).

Yes it ends up costing you money to refinance but if you obtain 2 or 3 decent size loans through a bank, pay on them for a bit, and then pay them off, the bank will be willing to loan you money a bit easier as time goes on even though your credit score isn’t so great.

The bonus too is they will report your great credit history to the credit reporting agencies.

Question: Have you built up trust with a bank? If not, what are you waiting for?

{ 7 comments… read them below or add one }

Cath Lawson October 17, 2008 at 3:04 pm

Wow John – things are so different over there compared to the UK. I really hope I get my chance to come and live there. Over here – every decision banking wise is made by a machine – it totally sucks.

Your financing seems to be different over there also and a lot more fair. Like if you pay a loan off early, you only get charged the interest for the number of years you’ve had the loan. I wanted to pay my car off two years early but it wasn’t worth it as I’d have had to pay exactly the same sum as if I’d carried on paying monthly.

Also, I hear that you can often assume someone’s mortgage over there. There’s not a chance of that here. And the American’s think their banks are greedy ours are ten times worse.

But I’ll remember this advice because I recently found out I may get the chance to come and live in America after all, so you never know.

Cath Lawson’s last blog post..Don’t Miss Out On Your Free Ad

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John Hoff October 17, 2008 at 3:20 pm

Wow Cath, I actually didn’t realize the UK banking and financing system was that strict. I suppose there are some advantages to using a computer to make the decisions alone but as a bank owner I would never trust my business affairs and prosperity to a computer. They are meant to provide statistics and data for an intelligent person to make a sound decision.

That’s the difference. A computer can make a logical decision, but not necessarily a sound one – hey I think that’s a blog article, right?

That really sucks about paying off your car (or lack of paying it off that is). As for assuming mortgages, it’s rare these days but was quite popular about 20 years ago or so. It’s still possible, but most mortgages are written in a way that they are not assumable.

What many people, here in the US anyway, forget is everything is negotiable. I purchased an investment property about 5 years ago and asked the loan officer from Chase bank if my mortgage was assumable. He said no but after I told him having it assumable was important to me and was a potential deal breaker they added it into my mortgage.

And wherever you move to, I hope it makes you happy. I think it’s cool that you’re open to moving to just about anywhere in the world. That’s a potential life changer.

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Rita October 18, 2008 at 12:09 pm

John,

This is great news! Maintaining a credit score over 700 in these days is critical to borrowing cash at a MUCH lower rate than borrowing off of a credit card. I tried to get that point across to a woman recently, and I hope she listened: putting yourself in MORE credit card debt these days is the financial “kiss of death.”
Last week, my husband and I tallied up our credit card debt, walked into OUR “personal” bank, and asked for a small laon – to the penny- to stop paying rates over 20% to the credit cards. It helped that we have no mortgage – I will admit that. But even WITH a mortgage, the banks want their money, so they’re much more likely to loan money to a good credit risk so that THEY get their monthly payments, without worrying that people are paying-off credit card debt first.
Though we did not have a huge amount of credit card debt, it didn’t matter. By the end of the day, our credit cards were ALL paid off – with the expection of $200 on each card – and my husbandd figured that over a year, amortized over a year, we had saved $58,000 by spending 20 minutes in the bank. (A figure far LOWER than what we even owed to the credit cards!)
$58,000 for 20 minutes of work? Not a bad deal, I might say! And you are right about another thing: the banks know that THEY are in trouble. Consumers with good credit can now negotiate with THEM.

Glad it worked – and I hope you got what you wanted!

Rita

Rita’s last blog post..Top 10 Movies to Watch this Weekend

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John Hoff October 18, 2008 at 12:35 pm

Hi Rita. That’s smart thinking and is a great example of how just thinking a little about your situation and where to put money can save big time.

Since you don’t have a mortgage (and if you have a house or condo), could you have attained a mortgage against the house to pay off the credit card debt instead of a personal loan? In that way you’re now getting an even lower interest rate, lower monthly payment, and the interest is now all tax deductible?

For anyone curious, like Rita said, banks want their money and they will work with people even with bad credit. What they really want to see is if they modify the payment/interest rate, can you still afford it. They likely will ask 20 questions about where you spend money, what your cost of living is, and how much you make and then structure a payment plan that will work for you.

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Rita October 18, 2008 at 12:56 pm

John,

For us to have taken a mortgage for the “relatively” small amount we needed, vs. the worth of our house, would have cost us MORE. We would have had to pay a penalty to “pay off” a ridiculously low mortgage in advance of 10 years. The loan will be paid off in 18 months or less! (probably MUCH less, as we are saddled with no credit card debt).
It IS important, however, to keep a small monthly balance on your credit cards – AND PAY IT OFF ON TIME. This is another way to increase your credit rating. There is nothing worse to a credit card company than to see a constant balance of $0.00. They much prefer people servicing a minimum payment (and, if possible, interest!) monthly.
Unless catastraphe strikes, at our age, we have vowed to NEVER pay another penny of interest to a credit card company!
(Note: this is for our personal finances; due to the nature of our side-business, it is likely that there will always be some credit card debt, until we hit our 3-year goal, as we continue to amass inventory- we’re almost there!)

Rita

Rita’s last blog post..Top 10 Movies to Watch this Weekend

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web loans March 3, 2010 at 8:19 am

Cath is right it is strict in the UK and only if you have the money can you negotiate terms and conditions. I have been brought to be nice and friendly which is great (especially in these times) but it’s amazing that trust and confidence can help you with financial dealings.

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Matthew Rankin November 30, 2010 at 2:42 am

It’s a pity we don’t know what your credit score was before being approved for the $30K loan – that would have made a big difference to your post. You’ve also made a very valid point though, that even with a credit score of any value – if you can borrow something from your lendor and pay it off quickly, they are more likely to lend you more next time around, and you’ll be improving your credit score along the way.

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