Repairing and Using Your Credit

It's entirely possible to reap many of the financial rewards available in today's real estate market without ever setting foot in a bank or otherwise utilizing credit in any way, shape, or form.

However, to fully seize the real estate opportunity, at some point you will want to willingly put institutional money sources, hard money loans, or even some forms of private money to work for you to take advantage of a unique opportunity – or to close a deal that is simply too profitable to walk away from.

Correcting or improving credit is within your reach and is easier than you might think.

Credit Repair Made Easy

None of us has the ability to walk on water, so everybody can benefit from credit improvement strategies.

The first step is to determine the level of credit repair that must take place in order to increase the odds that it will be available when and if you want or need to use it. By now, you should have already gotten a free copy of your personal credit report. If you haven't, go to, www.annualcreditreport.com, and get a copy.

Credit issues typically fall into one of three categories: Slow pay, No pay, and fraud. Depending on the situation, the steps you need to take will vary, so I'll go through each very briefly.

Slow pay – This is the most common type of credit damage reflected in your credit report. You've undoubtedly been guilty at one time or another of this particular credit “sin”. Your payment date comes and goes, and whether due to financial troubles, simple forgetfulness, or for some other reason, the payment doesn't get made on time. (A scheduled payment doesn't “count” as being late for credit-reporting purposes unless it is 30 or more days late.)

It can be difficult to correct this kind of credit damage because legitimately late payments can follow you around like a lost puppy for up to seven years. However, if it's a one- or two-time occurrence, some creditors will consider a courtesy deletion – changing the status of your late payment to one more favorable to you. They're not required to do this, but creditors will sometimes do this for their customers if you're polite about it when you ask.

Another way to attack a legitimately late payment is on technical grounds. For instance, if your credit report shows that your monthly payment of $317.54 was received more than 60 days late and your actual payment is different than the amount reported, or you were actually 30 days late, you can demand that the entry be removed because it is untrue. If the creditor fails to respond within a reasonable period of time, generally understood to be 30 days, or cannot prove the validity of the entry, the credit reporting agency is required to remove the late payment.

No Pay – Not quite as common as slow payments are bills that are completely unpaid. Maybe it's a medical bill or a final utility bill that slipped through the cracks, or a judgment that was entered as a result of your having lost a lawsuit, but these entries can damage your credit as well.

If the item is more than seven years old, it can be removed – and should happen automatically. However, if it hasn't, you can (and should) demand that the item be immediately removed.

Another approach you may choose to take is to negotiate with the creditor to have the item removed from your credit report. By offering to pay the full amount due, many creditors will be willing to update the payment status to “paid as agreed”. If you take this approach, be sure you get any promises made by the creditor in writing. Creditors sometimes have very short memories and are willing to say anything in order to collect past due accounts.

Fraud – As identity theft becomes more prevalent, people are finding inaccuracies on their credit reports. In the case of fraud – where accounts are opened in your name with the intention of ripping you off – you can demand immediate removal.

However, this process isn't instantaneous. You'll have to contact the creditor directly, report the fraud, and in most cases be required to file a police report with your local law enforcement agency. Some creditors are resistant to removing these entries, though, because these losses will have to be written off as uncollectible – and some would rather try to coerce you into paying the account off than risk having the account go unpaid.

Stick to your guns, though, because the law is on your side – and failing to remove fraudulent entries from your credit report can negatively impact future credit applications, and can make reaching your dream of real estate investing success more difficult to reach.

Credit Improvement Strategies

Once you've done everything you can to repair your credit, it's critical that you implement specific credit improvement strategies. There are dozens of things that you can do, but here are some of the best methods that I know of:

Credit Hitchhiking – Your credit score can almost immediately be improved by “borrowing” somebody else's credit record. While you can't buy someone else's good credit, you can catch a ride on their shirttails by becoming an authorized user on their credit file. Do you have a parent, a child, or a close friend with an excellent credit score who would consider adding you as an authorized user on one of their low-balance credit cards? Reassure them that you aren't looking for permission to use their card and that you'll go nowhere near the mall with their card. See if they'll add you to their account. They will keep the card. They can do as you ask without risk – and you both get a tangible benefit, although you'll be the real winner.

However, this is one of those situations in life where a family member or a close friend with a high credit score and a credit card can help you out without needing to pony up any money or lending you any of their stuff – two key reasons that people are inclined to say, “NO!” before they even know what it is that you want. The benefit to you is that your credit score can improve without having to spend a dime.

Shuffle the Deck – One of the factors that goes into your credit score is credit utilization – the way you use credit. Creditors like to see regular purchases with multiple credit cards, and they also like to see that each of your cards isn't “maxed out”. By transferring part of the balance from an existing credit card that is more than 40% of its available credit to another card so that the balances on all of your cards is less than 40% of the total credit line, you can improve your utilization of credit, while improving your credit score.

While this technique will cost you a few bucks (the cost of the credit card company's balance transfer fee), it can potentially save you thousands of dollars in finance charges by improving your credit score. The interest rate and loan terms that lenders will give you are determined in part by your credit utilization, so the better you are at shuffling the deck in your favor the better off you'll be in drawing favorable loan terms.

Behold the Power of the Short-term Loan – Short-term loans can be one of the best friends you can have in terms of credit improvement strategies. If a loan is scheduled to have a payment history of at least six months, it will factor into your credit score computation.

If your current credit score is high enough, go to your local bank and borrow a small amount of money that you can repay over a six month period of time. If not, request a loan secured by a deposit that the lending institution can hold as loan collateral. Most lenders will gladly give you a loan that is 100% secured by a deposit – and the interest charges will be very nominal.

Credit Use

Use the credit that you have wisely and you'll improve your chances of being able to tap into it when you need it for your abandoned and distressed property investments. While none of these steps are particularly difficult, you may find that you don't want to expend the energy – or the time – in implementing some of these strategies. If this is the case, a reputable credit repair company can be a God-send to you, but the good ones are few and far between.

The repair and wise use of credit is just one of the many ways that you can get rich beyond your wildest dreams in the exciting abandoned and distressed property niche of the real estate market. As a longterm real estate investing insider, I've accumulated a ton of real estate knowledge using these very same techniques.