The "Kings of Credit" - Jose Rodriguez, Andre Coakley, Derrick Harper, and CEO Daniel Rosen tell credit repair business owners some of the escape routes from bad credit.
But the world of lending and credit hasn’t always been a world of equal opportunity - and it still isn’t for many people. Historically, loans in poverty-stricken neighborhoods were not available or too expensive, giving lower income, racial minority residents fewer opportunities to buy homes, while auto repossessions are still predominantly happening in communities of color. Single parents face extremely difficult times simply trying to stay afloat as they work to try and pull their families out of soaring debt - only to be trapped in more and more debt due to low incomes, high interest rates, and many mouths to feed beyond their own.
The credit and lending world has a dark underbelly, displaying little to no concern for the welfare of its borrowers. It’s a sad reality that many of America’s communities are drowning in debt, day after day. With consumer debt totaling 3.898 trillion dollars in 2018, increasing 7.6% from the previous year, many lenders know exactly how to trap borrowers in debt, capitalizing on desperation and a lack of financial education to drive a profit.
You may feel compelled to help people who are trapped by bad credit fight their way out of financial prison and difficult times. You may feel a calling to help people in your community overcome their financial struggles and better their lives, just as you may have done in the past. With this sense of desire and passion, you have what it takes to be that credit hero your community truly needs.
If you’re worried that your past financial troubles disqualify you from running a successful credit repair business, you’re mistaken; your ability to overcome and relate to these financial struggles will actually empower you to help others who face similar situations. If you can pick yourself up out of the pressures of debt, educate yourself, and you feel a deep calling to help others do the same, you have what it takes to handle the pressure of being a business owner.
Below, we’ll explore how bad credit is designed to trap your clients in a negative cycle of debt. We’ll look at the ways you as a credit repair business owner can run an inspired, meaningful company that gives credit power back to people. Fight the system designed for failure while empowering yourself to build the credit repair company of your dreams.
How Credit Works: The Reality
To understand how to help your credit repair business clients, let’s take a closer look at how credit works, in a nutshell:
When someone borrows money, through a credit card or another kind of loan, credit bureaus (Equifax, Experian, and TransUnion) collect that information and store it. This information is kept in your data file and is used to calculate your credit score. Your credit score is calculated by taking a variety of factors into account, including:
- How long you’ve had the account
- How many and what kind of accounts you have open
- Your payment history
- How often a creditor checks pulls your credit history when deciding whether or not to give you a loan or a credit card
Any time you or your credit repair business clients try to secure a loan or open a new credit card account, whoever is issuing that loan or card will review your credit file and your credit score to decide whether or not to work with you. A low credit score suggests that a person is more of a riskier borrow, whereas a high credit score indicates someone is less of a risk to not make his or her payments on the loan.
Furthermore, if you’re applying for a new job, your potential employer can also do background credit checks by paying a fee to one of the three credit bureaus. Doing so allows companies to see if you’ve had any legal judgements or bankruptcies in the past.
Credit bureaus make the majority of their money by selling your data to banks and credit card companies; using this list, credit card companies market their credit cards to specific groups of people.
Here’s Why Bad Credit Traps Your Credit Repair Business Clients in a Cycle of Debt
In a perfect world, these banks and credit bureaus would be rooting for their clients to pay their full balances every month on their loans or credit cards. Unfortunately, motivated by making money, the banks and bureaus have historically worked against people, especially those who are experiencing poverty.
By setting a debt trap through high interest rates and short terms, professional lenders profit on people’s lack of financial education and inability to pay off their balance every month.
How your credit repair clients can quickly get stuck in a debt trap:
If one of your clients has a poor credit score, he or she may get approved for that credit card or loan, but she or she will have to combat higher interest rates and less favorable terms to pay back that loan. Before they know it, they’re stuck in a debt trap.
A debt trap occurs when a borrower is unable to make payments on the loan principal; instead, he or she can only afford to make payments on the interest.
The problem: making payments on the interest does not lead to a reduction in the principal.
- The borrower makes the minimum payment, but he or she does not get any closer to paying off the loan itself
- After repeatedly making these minimum payments over time, the borrower can accrue thousands of additional dollars in interest
- Add late payment fees, rate increases for late payments, balance transfer fees, over credit limit fees, and more to the list of obstacles on an obstacle course that is designed for failure
- The borrower, who had poor credit to begin with, quickly becomes completely overwhelmed by debt as their loan balances skyrocket
- They continue the negative financial cycle, digging themselves deeper into seemingly inescapable debt - all while their credit scores plummet
How Bad Credit Hurts People in the Day-to-Day
As credit scores plummet, borrowers who are deep in the trenches of debt will also experience additional side effects of having bad credit:
- They may have trouble renting an apartment or may have to pay a higher security deposit, as landlords often run credit checks to see how likely people are to pay rent
- They could get turned down for employment, as riskier financial behavior could be perceived as a risk to on-the-job-performance
- They often find it more difficult to secure a cell phone contract and are forced to use prepaid, month-to-month contracts
- They pay higher insurance premiums, as insurance companies argue that low credit scores lead to more claims being filed
- They will find it more difficult to purchase a car, or may get denied for the car loan altogether; if approved, they’ll face another high interest rate on that car loan
- They will often feel bad about themselves or down on their luck
With a low credit score, your clients’ day-to-day lives become much more challenging. And climbing back out of a pile of debt seems almost insurmountable without the right coaching and the right support.
Credit Repair Escape Routes: How to Help Clients Improve Their Credit Scores
That’s where you as a credit repair business owner can step in to provide the coaching and support to people in your community who desperately need help. Through educating people with bad credit about the escape routes they can take, you can put your clients in a position to clean up their finances, boost their credit scores, and transform their lives.
Try taking the following approaches to help your credit repair clients escape from debt:
Write dispute letters that work for your clients.
As a credit repair business owner, you are your clients’ advocate. When you’re writing dispute letters that work for your clients, don’t be afraid to challenge and question certain marks, as credit reports are far from foolproof. Go through the credit report with a fine toothed comb to find potential errors and review the report, line-by-line, with your clients. Don’t hesitate to ask credit card issuers to lower the interest rate, as most would rather do that than lose a customer.
Educate and empower your clients to develop better credit habits
Remind your clients that in order to boost their credit scores and transform their lives, they have to break out of living in the past to look toward a much brighter financial future. Set clear financial goals with each client and encourage them to write these goals down. Schedule check-in sessions with clients to review progress on these goals to help them stay motivated.
Educate your credit repair business clients about how adopting the following habits can boost their credit scores. Encourage them to:
- Make monthly payments on time
- Keep track of credit balances
- Apply for credit infrequently
- Be patient and be in it for the long haul
While there is no quick fix for repairing your clients’ credit, recommending simple ways to develop better credit habits is among the first steps.
Create a specific game plan for each client based on goals and values.
Take the time to sit down with each client and dig deep into discussing what they want out of life. Ask them about their struggles and their fears and get into the heart of the matter. What are your clients’ dreams? Where would they like to be in 1 year, in 5 years, in 10 years? Listen to them, hear them, and then inspire them to make substantial changes in their financial behavior to achieve these goals.
As a credit repair business owner on a mission to empower and inspire people to change their lives, you have the opportunity to help people in your community find the escape routes to free themselves of the debilitating effects of bad credit. You can take pride in running a business whose mission is to teach people how to rescue themselves from financial despair through focused and committed action. And you can make a real, measurable difference that not only feels rewarding, but also rewards you financially as well.
Ready to learn more about how to become a credit repair hero?