I took out a loan today.

Went to the Credit Union today and took out a loan for $1000 for one year, using my savings account as collateral.

I had the $1000 put in to my savings account, and set up automatic payments from that account.

The rate on the loan is 3.10%, because it is secured. The total interest on the loan will be $18.10. Meanwhile, since the money is sitting in my savings account, it will earn interest at 0.10%, netting me about $0.50 for the year.

For $17.60, I will improve my credit score by about 40-50 points.

Now, I'm not saying it's a racket by banks. I've said that before, and someone here told me that I was just proving I was capable of making payments on time, and that it's not a racket at all.

Call it what you want, but the 50 or so points that my score goes up by (for a mere $17.60 in interest) will save me far more than that when I get a car loan in the next 6 months.

Not that I need a car loan; I could pay cash. But car-sellin' fools love to loan money to people with good credit scores at rates hovering around 0%. I'll be happy to use their free money to make more money over the life of a 6-year loan.

I'm finally catching on to how the rich get richer!

We just did that. We had zero credit, which is worse than terrible credit !??!
It is a racket, but it saved us moolah in the long run.

I think that I might suggest that to a kid that I know.

That was highly suggested when I was young and before they handed out debit cards like they do now. 30-40 years ago that was one of the easiest ways to create a credit history which you need to get credit. Got my first Sears card by paying cash for a washer & dryer, they figured if I could buy both cash then the credit card was a given. Didn't tell them that I had just transferred there in the military and had back pay and travel pay paid to me which allowed me to buy the washer and dryer at the same time.

You pretty much need a credit history these days. We put pretty much everything on our CC and pay it off every month. We also finance our new cars. These two things (and paying all bills on time) keep our score high enough to do whatever we need to. I hate playing the game, but it is what it is. I'll work with my kids early on to help them establish their credit as well.

You know it may be a bit of a racket but it does give you a lot of freedom in how you manage your money. They have to have some sort of way to determine risk.

With the interest rates that are very low, you can finance longer term debt at a really attractive rate. Shoot with the low rates, I was able to refi the house down to have it paid off in 17 years total with a payment lower than my original 30 year note.

In reply to bmw88rider:

Agreed. Having good credit allowed me to refi my mortgage from a 30 to a 15 with similar payments. That was back in 2002. I paid off the mortgage last year (still made additional principle payments). Having the house paid off at 45 is a very nice feeling.

One nice thing is towards the end of the mortgage I was paying so little in interest the change in my tax refund was minimal.

It also allows people to fund their retirement for 'free'. If you mortgage/car loan/whatever is low enough, there is a greater financial incentive to fund retirement early than pay off the mortgage early because of taxes. In Evans case, it also makes sense to put the $20k or whatever for a new car in a liquid account of some sort and pay the paltry interest. You're paying a small fee to keep a liquid emergency fund instead of having it tied up in a (depreciating) asset. There are a lot of fun things you can do that give you quite a lot of freedom once you have good credit and a bit of cash.