Around six months ago, I got a phone call from a member of my wholesaling investor group. These are the people who pay me to find foreclosures for them in tri-county. He was calling me to help his daughter get started in the business but with one little challenge – she has bad credit.
I thought before we did anything together, it would be better I gave her some tips to boost her credit up which will
help her in getting all kind of unsecured credit later down the road which will translate in her buying more deals from
me.
So I made the call and suggested some tips to boost her FICO. She was smart enough to listen closely and implement what I showed her. Her credit has gone up significantly in the last couple of months and she no longer has to depend on dear dad to finance her deals.
He is happy about it too. I am happy because of the one check that already came from her and will continue to do so in the future.
So here are some tips for you or anybody you do business with who is fallen in their credit scores and need to fix it to get back on track. If you have good credit already, print this and keep it somewhere for the inevitable wholesaling or retail flip lead that you will get one day where the person is motivated and really want to do business with you but is stopped in their tracks because of their FICO.
Coach them to fix their credit and you will have their eternal gratitude because you did something for them that pretty much nobody else did. They for a fact had no idea how to did it otherwise they would have done it by now.
Here are my 7 tips for fixing bad credit fast for Michigan Real Estate Investors:
1.Pull a fresh new copy of your credit: Almost 95% of all conversations about bad credit stop around me when I ask them, “So what is your FICO score right now?” Turns out that since they got denied a couple of times or declared bankruptcy or got late on their credit cards or cars or mortgage a long time ago – they have stopped worrying about their credit score and gave up on it.
Go to www.MyFICO.com - that is a website owned by Fair Isaac and Company, the creators of the FICO scoring system that all lenders use to give credit or money out to folks. A side benefit is that since this credit inquiry is generated by Fair Isaac and Co - its effect on your credit report is zero.
You can buy a credit report from all three or one credit bureau for $15.95. Buy TransUnion. Almost all the big credit card companies pull Trans Union to determine your eligibility. Mortgage lenders pull all three credit reports. Before we apply a band-aid to a credit problem; we need to know where the bleeding is coming from and how much?
Alternatively if you have a buddy who works for a mortgage company – he or she can pull a single bureau Trans Union file for you also for around $5. The free credit report that all three credit bureaus gave out will not work for us simply because there is no FICO score on them.
Get it done before the day is over if you are serious about it.
2. Do a short sale on your collections: By the time a debt hits a collection agency, the people who gave you the money have already given up on you. Collection companies work on commissions which means that they get to keep a large percentage of what they collect from their target. Hence the threatening tone of voice and screaming over the phone from them. If they do collect something, the actual lender is just happy to get whatever they could. Everything else gets written off as a Bad Debt Expense on their side.
Pull your credit report. Make a list of people that you or the person you are trying to help owes money to and call of them up, one by one. Tell them that you really want to pay these collections off but just cannot afford to pay them in full amount but you are willing to pay at least 30 cents on the dollar if they are willing to close the file and leave you alone. You will probably end up settling somewhere around 40 to 50 cents on the dollar. They will even give you a payment schedule to pay this. Grit your teeth, make the payments. Believe me five years from today you wont even remember these amounts. You need to put this behind you, preferably as fast as possible.
3. Get 2 secured credit cards: the credit card companies are not that evil. After all they did come out with secured credit cards which are probably the best invention since white bread to build your credit fast.
Almost 100% of the times, bad credit is there because there is NOTHING on the good side to offset what has already happened in your life. It is a pretty hard loop to get out of. You get bad credit. You want to fix it. But nobody wants to give you any credit because you have bad credit. So now you are stuck.
Secured credit cards give you a great option to get out of this situation. This is how they work:
- Either for a fee ($50 to $150), a small number of banks will give you a credit card with a small limit. Somewhere from $250 to $500. Some banks will even give you a secured credit card by asking you to send them $250 and they send you a credit card back with a limit of $250. There is a good list of secured credit cards available at www.BankRate.com. They keep updating it with different promotions of these banks. Pick one up that requires the smallest fee and get it. If you can afford it – get two different ones ASAP.
- Start using your secured credit cards for everything. Groceries, gas, movie rentals, fast food. When you get the bill in the mail. Pay it in full every month. Don’t carry a balance. They have ridiculous high interest rates (18% to 25% is pretty common). Pay it in full every month.
- Within six months you have built a “good track record” to start off setting whatever already has happened on your credit report in the past. I went from having no credit to 640 with two credit cards – one of them had a limit of $250, the other one had a limit of $600. Then I got a car in my name. Then one unsecured and before I knew it I had 720 FICO. From start to finish the whole thing took around 10 months to pull off. This was seven years ago and my credit has stayed in high 700’s ever since.
4. Stop applying for credit: Every time you apply for credit and get denied you make it harder for yourself by adding yet another credit inquiry on your credit report. I was talking to a new real estate investor in Pontiac recently and he applied at 15 banks, knowing fully well that he has bad credit, got denied at every single one of them, and so applied at 10 more.
Got denied there too and now has an insane 25 credit inquiries on his credit report. The credit card companies make matters worse by sending out deceptive letters of approval to everybody and their mothers which make people believe that by some miracle they would be able to get credit.
Pull your credit report and start working on the plan to fix your credit. Get unsecured credit cards where the lenders don’t really care about your credit that much and stop applying for every gas station and department store credit card you visit. Inquiries are harmful for your credit history.
5. Why Bad Credit happens to good people? I don’t know and you should not worry about it later. Treat your credit as a challenge. Nothing more. Who cares what happened? Whatever is on your credit report belongs in your past, not in your future.
No matter what your credit score is right now – you can start making the moves to start pushing it up and up. I had a student who came to Quick Start Bootcamp some months ago, had bad credit and was pretty depressed about it when he was hearing stories about my students getting half a million dollars in unsecured credit etc because he could not get it immediately.
I had a chat with him after a session. Told him what needed to be done and get in action. He did. In less than one year, he went from having bad credit in the mid 500’s for bunch of collections, medical bills, no credit cards in his name – to now having a score in mid 700’s and himself having $150,000 in unsecured credit.
6. FICO is the ONLY thing that matters: I don’t know why Microsoft gets a bad rap for being a monopoly. If you want to see true power then watch Fair Isaac and Co. More than anybody else they control what the average American can buy and how much the financing will cost us. I am surprised that X-Files never did an episode on them and blamed the invention of the FICO system on an alien civilization.
There are 3 credit bureaus – TransUnion; Experian and Equifax and now they are all selling private label versions of credit scoring systems. Waste of time. The only thing matters in the world of credit and real estate investing is FICO. 90% of the largest U.S. banks use FICO® scores. It runs from 300-850. You want to be up there in the high 600’s’ and early 700’s.
7. Have a target FICO of 680 then 720: My first target for my own credit seven years ago was 640. Then 680 and then 720. I wrote the goal down because unless you write it down and internalize it – nothing will happen. Your life and you have become used to having a bad credit. It will not change by itself.
You have to change it by doing some things, one after another. Write it down. Make it a challenge to yourself to fix your own credit. It will be a great feeling to finally pull your credit report one day and see your FICO score way up there or to be able to go anywhere on the Internet or any lender and to know without the shadow of a doubt that you will be approved.
One last thing, check out www.LaptopGiving.org . They are doing a very cool thing this November. Starting today, when you donate an XO laptop to a child in the developing world, you'll receive one for the child in your life. I knew when I was growing up, I would have given my left pinkie to get my hands on a computer of my own.
The price for the two laptops will be $399, $200 of which is tax-deductible. Additionally, T-Mobile is offering donors one year of complimentary access to T-Mobile HotSpot locations throughout the United States, which can be used from any Wi-Fi-capable device, including the XO laptop.
Their website is http://www.laptopgiving.org . I just bought 3 of them. If you can help, please do so be either giving a laptop or forwarding their website to your email contacts. If you give away at least 2 laptops, fax me your receipt at 248-671-0457 and I will do a 1 on 1 personal coaching call with you for 60 minutes and you can pick my brains on anything to do with foreclosure investing in Michigan.
