This topic on how to rebuild your credit is an area that I have a lot of experience. For over 6 years I owned a real estate investment firm where I would buy properties, then sell them to people that had bad credit. I basically would offer what is known in the industry as “Seller Financing”.
My intention was to help people that had damaged their credit in the past and wanted a second chance to get back on their feet and become home owners.
The way I would structure the sale is that I would finance them for 5 years which would allow them to rebuild their credit to a point where they can get a loan on their own through a traditional bank.
If you are wondering how I made money on the deal. I basically would buy houses with no less than 15% equity. I would put 10% down to buy the property. Let’s say that I got a 5% interest rate on the 90% loan. I would then turn around and sell it to my new buyer at 5% below market value (10% above my purchase price). I would ask for a small 3% down payment and their interest would be equal to 1% above whatever I had on my existing loan.
My profits would be the 10% equity + the 1% on the 90% loan. The buyer was happy because they were getting a good deal below market value plus a good interest rate which was way below what they would get if they went directly to the bank. I was happy because I was covering my expenses, I was helping a family get back on their feet and I was making money along the way.
Before I signed the contract with my buyers, I had a 1 hour session with them where I would teach them a few strategies to implement immediately which would allow them to rebuild their credit within 12-18 months if applied as instructed.
In the majority of cases (28 out of the total 39 couples that I helped), they had increased their FICO score by over 100 points within 12 months. The remaining couples had increased their score from 25-100 points. It was in my best interest that my buyers would improve their credit so I can eventually get my investment out of the property within the 5 year contract period so I can do it all over again and help more families do the same.
It’s important that you implement at least 2 of the following strategies. You can pick and choose which ever you feel comfortable in applying. Bookmark this blog post so you can come back and reference how to rebuild your credit within 12-18 months. The below strategies are not in order of importance. You can apply either strategy and based on my experience, they all work very well. Even if you only applied one of these, you will see improvement within a short period of time.
One important note. I suggest that you monitor your credit score. There is a free credit score service that I highly recommend that I’ve been using myself and you’ve probably have seen their commercials on TV. It’s called Credit Karma. This is truly a FREE service. They make their money through the advertising of banners and other ads that you will see on their website.
How To Rebuild Your Credit Strategy #1 – Secured Credit Card
This is probably one of the easiest strategies. Many banks offer a secured credit card. Basically what they do is give you a “credit card” secured by the amount of money that you deposit with the bank. The credit limit is equal to the amount you deposit. So if you think about it, it’s really a disguised “debit card”. Since your credit limit is the same amount of your deposit, it’s really your money that you are using.
The difference between a debit card and a secured credit card is that for the secured credit card, the bank will report on a monthly basis to the credit bureaus that you have a “credit card” in the amount of “$.xxx” which is the amount you deposited.
So let’s say that you are spending $1,000 currently in groceries, gas, misc. bills etc. Then take that $1,000 and open a secured credit card and instead of paying all of your bills with your checking account, start paying it with your new secured credit card.
As time goes by, try to “increase” your credit limit. In other words, add more money to your secured credit card which in the eyes of the Credit Bureaus, the bank has “increased” your credit limit. When in fact you are the one that increased it for yourself.
This strategy alone will boost you FICO score rapidly.
I will share my other strategies on how to rebuild your credit on my next post which you can go here.
P.S. To see EXACTLY how this blog is allowing me to work from home with only 2 hours of work a day, then click here.