I met a future client the other day. The reason I call him a future client is, like too many people, he has less than ideal credit. Like many people, it was not his fault.
You see, this young man served his county by completing two tours in Iraq. He came home to his young wife, only to find out that she was sick and unfortunately passed away.
He took care of her, and stayed by her side until the end. His work suffered, and he was on the list when layoffs happen. The medical bills piled up, house payments piled up, and he lost his home.
He couldn’t find a place to rent, or buy, because of his bad credit, and the fact that he didn’t have a job, so he bought a van and lived out of it. He made that van his library, and his office. He worked, went to school and got a degree, but he still had bad credit.
That’s when we met. He knows a friend of mine, and my friend thought I could help. I bought him dinner. He wouldn’t let me pay for it, until I made him understand that it was a business meeting and not charity.
I started off by telling him to write a letter, explaining why he has bad credit, and send it to the credit bureau. I told him to have the credit bureau include the letter within his credit report. Then I told him to request a free annual credit report.
I suggested he look the report over very carefully and dispute anything that does not look right, such as debts that he doesn’t recognize. He should dispute these debts by writing a dispute letter. I told him this report would not show a credit score, but it would show the information that is used to calculate his credit scores, from all three credit bureaus, TransUnion, Equifax, and Experian.
I told him a Fair Isaac Corporation (FICO) score ranges from 300 to 850. Then I wanted him to know a credit score starts to become questionable when it falls below 650. A credit score breaks down into the following areas:
- Payment history 35%
- Outstanding debt 30%
- Length of your credit history 15%
- Types of credit 10%
- Employment history & Identity
- Inquires made on credit within fourteen days
- How long it took to pay off debts in the past
- Late payments
- Bankruptcies, Foreclosure and liens
The following are some things I told him to do, in order to start repairing his credit:
- Pay rent and other bills In advance
- Do not take out additional credit cards
- Pay two months rent as a security deposit, instead of one month
- Get a roommate
- Pay with direct deposit
- Obtain recommendations from employers, and other business you have purchased from
- Use a credit repair company to validate debt, stop vendors from reporting past bad debt and questionable accounts. Some credit repair companies are Lexingtonlaw.com, Skyblue, creditrepair.com and Ovation
- Find a good mortgage broker
Lastly, it usually takes about two years of doing the things listed above before your credit is repaired. When someone that has less than ideal credit is ready to buy a home, they should try to purchase the home through a company, such as American Rent To Own. This way they could lease, and then purchase the home. American Rent To Own allows some of the rent to go towards the purchase of the home.