Although most people spend years trying to get rid of it, you actually need debt to keep your score alive.
Especially in the real estate industry, your credit score plays a huge role in the success of your investing. We see many investors (especially ones who are new to the game) struggle with some common issues:
- Forgetting to pay bills on time
- Overusing credit cards
- Not using enough credit or not having any debt
Cultivating and maintaining a healthy score is a fine balance between creating debt and paying bills.
Why Do You Need Debt?
Without some debt, FICO doesn’t recognize you. Without debt, even if you try and calculate your score, you can only get a low one.
This isn’t helpful when you’re trying to purchase investment properties.
Essentially, debt allows your score to exist and gives it the chance to be high—you just shouldn’t owe anyone too much money, and you need to pay your bills on time.
Consequences of a Bad Credit Score
If you end up with no debt, your credit score is likely to drop (or disappear altogether for a while).
With a low credit score, you can expect higher interest rates on your house, car, and any other loans you hope to take out.
This makes you lose money fast and can get in the way of your investing or even your retirement.
Consequences of a Good Credit Score
In contrast, if you have a high credit score, you can look forward to cheaper interest rates and lower bills.
This makes it far easier to create successful income from real estate investing.
Additionally, if you maintain a high score, you’re more likely to build positive relationships with lenders and grow your business more quickly.
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