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This question is not how to build credit quickly, although those strategies will be used simultaneously to prevent having to use the answers to this question again.

As a new graduate, I have had a hard time managing finances during my time in school, with loans, and obviously funds were very limited. I expect to receive a decent salary after graduating and need to make a few purchases (such as a car to be able to work).

QUESTION: If a person has no or bad credit (specify differences that apply to your answer), but they have a decent salary and some tangible cash, how can they mitigate the ramifications of their credit?

Obviously, credit is a measure of trustworthiness and responsibility. it is not necessarily a representation of how much money you have at a given moment. However, money does talk. At least to me. There are some obvious answers such as "just deal with higher percentages with your extra cash", but in some cases I may not be approved at all because of my history. I am looking at creative, borderline genius, ways to leverage cash or salary for credit.

UPDATE

Here are some sample answers I was looking for. I know there is no free lunch. I'm asking the question, so obviously some of these suggestions may be wrong or downright fantastical.

  1. Pay debt collector directly if debts have gone to collection. Try to negotiate removal from report.
  2. Consider financing through car dealer vs. bank
  3. Save as much as absolutely possible up until the time of purchase to pay down the principal
  4. For loans under $15,000-$20,000 (correct?), raise more cssh for the down payment and then juggle the card paymemts on several credit cards, paying them off sequentially and in time. This may actually stimulate credit growth by using a larger share of credit allotmemt if maintained at a reasonable level and responsibilbly paid off. Yes, I know the bank will be waiting for me to screw up and that is how they make their billions.

Again, these ideas are pedestrian and was hoping there would be some clever/novel suggestions that mitigate bad credit, in the short term, leveraging cash.

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    What are some concrete examples of life upgrades to deal with the demands of stressful work? – Nathan L Jan 10 '17 at 18:14
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    Use your income to get out of debt and build an emergency fund. How long will that take you if you live a spartan life style, budget, and perhaps pick up a second job? – Pete B. Jan 10 '17 at 18:34
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    It sounds to me like you are looking to buy as much as you can after school, on the anticipation of (a) getting a high paying job, and (b) being in a stressful situation that you feel requires / earns the right for expensive tastes to compensate. Both of these assumptions are flawed. Firstly, because unless you have a contract in front of you, you don't know what your first job will pay you (though you may have some idea). Secondly, you are entering your prime working years. This depends somewhat on your industry, but I'd say a near-universal truth is 'work as hard as you can, while you can'. – Grade 'Eh' Bacon Jan 10 '17 at 18:54
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    I don't think there's a reasonable way to answer this question without being equally as vague as the question. Do you have no credit or do you have bad credit; the manner of attack is very different in those two situations. Do you have credit cards or loans that are late or in default? Generally, the best way to leverage cash to improve your credit is to send it to your creditors unless you don't have any creditors.... – quid Jan 10 '17 at 20:14
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    Can you offer any details on why you think you currently have bad credit? With student loans, and little else, your FICO should look ok. This question may be great, but it's pretty vague, what exactly is your concern, and what is your goal? – JoeTaxpayer Jan 11 '17 at 14:06
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No Credit

If you have no credit history but you have a job, buying an inexpensive used car should still be doable with only a marginally higher interest rate on the car. This can be offset with a cosigner, but it probably isn't that big of a deal if you purchase a car that you can pay off in under a year. The cost of insurance for a car is affected by your credit score in many locations, so regardless you should also consider selling your other car rather than maintaining and insuring it while it's not your primary mode of transportation. The main thing to consider is that the terms of the credit will not be advantageous, so you should pay the full balance on any credit cards each month to not incur high interest expenses. A credit card through a credit union is advantageous because you can often negotiate a lower rate after you've established the credit with them for a while (instead of closing the card and opening a new credit card account with a lower rate--this impacts your credit score negatively because the average age of open accounts is a significant part of the score.


Bad Credit

This advice is about the same except that it will take longer for negative marks like missed payments to be removed from your report, so expect 7 years to fully recover from the bad credit. Again, minimizing how long you have money borrowed for will be the biggest benefit.


A note about cosigners: we discourage people from cosigning on other people's loans. It can turn out badly and hurt a relationship. If someone takes that risk and cosigns for you, make every payment on time and show them you appreciate what they have done for you.

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Genius answer: Don't spend more than you make. Pay off your outstanding debts. Put plenty away towards savings so that you don't need to rely on credit more than necessary. Guaranteed to work every time.

Answer more tailored to your question: What you're asking for is not realistic, practical, logical, or reasonable. You're asking banks to take a risk on you, knowing based on your credit history that you're bad at managing debt and funds, solely based on how much cash you happen to have on hand at the moment you ask for credit or a loan or based on your salary which isn't guaranteed (except in cases like professional athletes where long-term contracts are in play).

You can qualify for lower rates for mortgages with a larger down-payment, but you're still going to get higher rate offers than someone with good credit.

If you plan on having enough cash around that you think banks would consider making you credit worthy, why bother using credit at all and not just pay for things with cash?

The reason banks offer credit or low interest on loans is because people have proven themselves to be trustworthy of repaying that debt. Based on the information you have provided, the bank wouldn't consider you trustworthy yet. Even if you have $100,000 in cash, they don't know that you're not just going to spend it tomorrow and not have the ability to repay a long-term loan. You could use that $100,000 to buy something and then use that as collateral, but the banks will still consider you a default risk until you've established a credit history to prove them otherwise.

  • Thank you for your response. Please see my comments above on the question. – user58446 Jan 10 '17 at 23:50
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    @user58446 - I guess we're having a hard time understanding the true nature of your question. You seem to have a firm grasp on what credit is and how your history affects how the banks treat you, but you're asking how to get around having bad credit and be treated like someone who has good credit. If your goal is to get a low interest rate, then shop around and use a large down payment and hope you get lucky. Otherwise, there are plenty of institutions that will lend to someone with bad/no credit, but at much higher interest rates. – BobbyScon Jan 11 '17 at 21:34
  • I suppose this is what I am asking, but now at least I am clear about the type of answer I was hoping to receive. If this is not possible, then either it is impossible and the appropriate answer should be upvoted and marked as such OR it is a bad question and should be deleted. Let the SO gods decide. – user58446 Jan 11 '17 at 21:40
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    @user58446 - Well, you're the one that needs to decide to delete it or mark accept an answer. No godly intervention required. What is unclear, to me, is why you need loans at all. You indicate that you'll be able to pay everything off except the student loan with your first paycheck, and you already own a car (although I understand wanted something newer). You indicate keeping that car as a backup, but why not sell it and save the cash to pay for a rental in the case you need it? Why bother with credit at this stage and not just save up, (which shouldn't take long based on what you're saying)? – BobbyScon Jan 11 '17 at 21:50
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Right now you are standing at a fork in the road. If I could tell my younger self who blasted past that fork without noticing it what to do, I would say: Research "Financial Independence" and "Early Retirement" and "frugal living". If you do it right you can be financially independent in 5-15 years depending on your comfort level with frugal living.

Many people celebrate graduation by financing a new car. It's like a quadruple whammy. New car brings sticker shock. Financing is paying to use someone else's money. Buying a car period is buying into the commuter lifestyle. And the cash flow could have gone to reducing debt or building savings. One blog I read advises that this step adds ten years to the time you have to work before you become financially independent.

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