In today’s market, it’s more essential to have good credits than ever! As an investor, this is even more critical when it comes to your personal credits. No matter if you are financing using your corporations, hard money lender, or private money partners. Somehow in some way, they want to see what your personal credit is like. So you better keep up with your personal credit and make sure they are above average (>700).
Personally, I usually have excellent credit score…always in the high 700s range. However, throughout the years, I have seen my credit fluctuates from 30 points to 100 points! Here are a few tricks you can do to help improving your score prior to getting financing for your next purchase!!
1) Credit card balance – make sure each credit card balance is less than 45% of its credit line. E.g. if you have a $10,000 credit limit on one card, you SHOULD NOT have a balance over $4500! If you do, ask your credit card company to increase your credit line, or transfer some of your balance to your other credit cards! For some reasons, the scoring system would rather you use more credit cards than have a higher balance on ONE card only. I did that once and improved my score by 30 points immediately.
2) No brainer – pay your bills ON TIME! I hope this is not something new to you!
3) Do not open any store credit cards, these cards will actually hurt your credit. Eg. Target, Macy’s, Best Buy’s…etc. The 10% off initial discount is not worth dropping your score!
4) Even if you don’t use your cards anymore, do not close them out. For some reasons, this also hurt your credits.
5) Having 1 mortgage account can improve your score a lot IF you pay them on time every month. Most banks would only lend money to individual with no more than 10 mortgages/properties per credit report. However, too many mortgage accounts will also hurt your score. When you become a more savvy investor as you increase your real estate portfolio, you should have established a corporation and be able to use your corporation’s own credits to finance your properties. Or get a commercial policy and do a blanket mortgage!
6) Here’s a little trick that I used…but only for very disciplined individuals! There are many cards that offer 0% introductory interest rate nowadays. Take advantage of those! You can ask the credit card company to transfer money into your bank account directly. You should immediately transfer it to a saving account, at least you can make some interest out of it! Pay the minimum payment every month, as long as you can…and pay off the remaining balance BEFORE the 0% introductory rate expires! You are paying your credit card bills with the credit card money to establish GOOD payment history and at the same time earning some interest (not too much since most banks pay less than 3% nowadays!). **although the money is in your bank account, doesn’t mean you can use it! This strategy is solely used to help you build your credit, if you use it and end up not able to pay your balance, you are going to hurt yourself in the end!!!!!**
7) Some people say opening up too many credit card accounts will hurt your score. I don’t know if it’s true, because when I first entered college, all I heard was how important it is to build credits. So I opened as many credit cards as I could. My credit report is MUCH longer than other average credit report, I must have about 30 credit card accounts all opened up when I was in college. HOWEVER, I know it is true that the system calculates the ratio of your total balance to your total credit limits. Eg. your combine credit card balance is $4500 and your combined credit limits on your credit report is $100,000. That will improve your score drastically!!!!
What if you have a collection account? If you owe the money, PAY IT immediately. You can always negotiate with the collection agency to remove this derogatory account from your credit report. It won’t help you if they don’t remove it. So be sure to request to have it REMOVED! These collection agencies are not easy to deal with, and all they care about is getting the money NOW. If it’s a small amount, and you need to get financing soon…just PAY it! Sometimes it’s not worth to fight over it and miss out on a much better opportunity. If it’s a fraud charge, you can always go back and deal with it later. Pay with your visa or master card, they can fight for you if the charge is false! Find a way to prove it! I’d say save your credits first!
By no means that I am affiliate to any credit bureaus or credit agencies. Above recommendations are from personal experience and observations only. You may want to verify some of these strategies yourself. There’s no guarantee on anything! Also, if anyone can explain how the credit system works, why some of the above methods can hurt or improve your score, it would be very helpful for everyone.
Thank you and start investing NOW!
–Helen Chong, www.HCRealtor.com