What if my Credit Score is F$#^ed!!!
This post is for those of you who have bad credit but still want to proceed with building wealth. Maybe you had hospital bills or unexpected baby’s or whatever-doesn’t matter. Im gonna talk about your options, long and short term.
Growing up I came from a house where we made our bread by running the family business. Needing to borrow money and ask for credit was common. One of the earlier lessons I heard from my dad was to always pay your bills first before anything. If you do that you will always have people wanting to loan you money. Years later I read about Guru’s teaching to always take your cut first and pay the bills with the rest. That works fine till you don’t have enough to pay your bills, then not so fine anymore.
You still have a couple options to get funds even with bad credit and I wrote about it in the post called Capitol. Private funding is when people with stacks of it, loan it out to you and it’s called Hard Money Loans. Justin Pritchard has a good article where you can learn more called Hard Money Basics.
Land contract is when you can convince the seller to finance you as if he were a bank. You may have to look hard to find one of these but they’re out there. If you go this route make sure your dealing with a legit person and the deal is completely in writing and legal. You can find more info here.
If you find a good deal and dont have the financing you can bring in a partner. Be sure you get the property under contract first or you could get gansta’d when ur future partner steals the deal out from under you. Or anyone for that matter. You will need to be a member of your local REI(Real Estate Investment) group or Apartment Association so that you can network these things. If the deal is good enough you will find someone who wants in and they can bring the money and credit. It may even be an opportunity for you to wholesale the deal to him.
Are you starting to see a pattern here? The possibility’s are endless, there are many different directions you can turn and that’s how investing in real estate goes. I have given you some idea’s for the short term on what to do if your credit is shot. This list is by no means complete its just meant to show you some options.
Now lets talk about a better direction for the long term. You need to face the music and fix your credit, undo the damage you created for yourself. If you have the money and want help you can contact a company that specializes in that sort of thing. A simple google search will show plenty. The DIY method is fine too, first get a copy of your credit report to assess the damage. You can get a free one at creditreport.com. Conventional loans will usually need a score of about 620 to fly. FHA however, only requires 500-580 depending on your down payment. These scores will allow for some mishaps on your credit report and still eek by. Keep in mind these scores aren’t exact because banks make exceptions in both directions. Additionally, you are probably looking at a score from one credit reporting agency like experion and Banks may use a different service or a combination of several. Credit Scores are not a perfect science for a number of factors so keep that in mind.
Now if your score isn’t up to par I’ll give you some steps to take to correct that shit. First go over the report looking for mistakes, there very common so when you find them contact the reporting agency and file a dispute. Don’t worry they make it easy since they make a lot of
fuck ups mistakes, you can even go online and fill out the form electronically. Do it right away because they move like molasses over there.
Next go ahead and dispute every negative entry on your report. Experion, Transunion, ect will then send your dispute to the lender and they will have to provide documentation to back it up. Companys can report to your credit report all they want till you start contesting it, at that point they have to put up or shut up. This is all your legal rights so don’t be intimidated and chances are about 1/4th of those negative marks will end up coming off your report, legit or not.
After those disputes pan out, contact the rest of them and tell them you want to make payments on the bill but also that you want it removed from your report. If they won’t remove it they should at least change it from “delinquent” to “Paying as agreed” or something like that depending on the agency. Tackle the smallest ones first, in fact chance are some of them are for small enough amounts that you may be able to pay them off completely.
These simple steps will take between 6 weeks and 6 months depending. Your score will continually increase as you do this as long as you follow through. You may want to pay a credit monitoring service to keep you informed about your credit report. They will send you a notification of any changes to your report so you can stay on top of it. Some will help you with disputes along with constant advice on how to improve your score. Probably a good investment if you got yourself to this point in the first place.
Besides repairing your credit you need to manage it on an ongoing basis so I’m going to tell you what factors help your score. First off moving around to 50 different addresses in a year is enough to make anyone nervous so stop moving! Obviously, don’t pay anything late! Ok Ok, your saying sometimes you can’t help it? Tough Love: if you can’t pay your bills you probably better worry about that before you try to buy properties JS. If thats you don’t trip, you need to either work on raising your income or reduce your bills or preferably BOTH.
Inquiries- this is what happens when you apply for credit and someone pulls a copy of your report. Be aware when you sighn that credit application at abercrombie you just banked an inquiry. Lenders don’t want to see many inquiries, it makes them nervous that your asking a bunch of others for credit. Don’t allow inquiries unless its very necessary and if you have to apply for credit than do it in batches all within a month. Its easier to imagine a person applying for some loans all at once for a car, for instance, especially if its only occasional.
There you have it, the basics to fix your past mishaps. This may seem like a pain in the ass and to be fair…….. it is. Keep in mind, Real Estate Investing is a long game not a “get rich quick scheme”. There are other intangibles that you will gain from this like piece of mind. So thats it, this has been my attempt to simplify a very complicated subject. Im sure people in this situation will have questions so if you put in a comment I can actually add to this post.
One other thing, when I mentioned “credit monitoring service” above I’m referring to companies like CreditKarma.com or a similar company. The fee’s are very reasonable either monthly or yearly like maybe 60-120 per year. Be wary of anyone charging much more than this because there’s a lot of shady company’s out there called “credit repair services” . Some of these are a complete rip off and charge like thousands as a one time fee so be advised. Do your due diligence homie. What? dont know what that means? Means do your research einstein!