Tag Archive for: business credit cards

Avoid The Real Estate Bad Credit Cycle With This Easy Trick

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Here are two solutions to get out of the bad credit cycle.

You might think of your credit score as a track record – something that describes your past.

But in the real estate investing business, your credit score is a bit more like a crystal ball – something that decides your future.

Your credit score determines what interest rates you qualify for, what amount a bank is willing to lend you, and whether traditional financing is available to you at all.

And unfortunately for real estate investors, there’s a nasty credit trap you can fall into.

Let’s talk about what this bad credit cycle is, how it impacts investors, and how you can get out and stay out of it.

A Real-Life Example of the Bad Credit Cycle

We get calls about this bad credit trap almost daily. Let’s go over the story of one client.

They were going for a DSCR loan. They owned the property free and clear – except they had put all the repairs on their personal credit cards, which they still owed. It’s not uncommon for investors to use credit cards to cover the rehab costs of a flip. In this case, they ran around $40,000 on the cards.

So they went to get their DSCR refinance of up to $210,000 on this property that was worth over $300,000. The LTV looked good, everything was checking out, and they actually got pre-qualified before they did all the work and got the tenants in the property.

Then the problem: their points rose from 1 to 3%. Their interest rate went from mid-7s to over 9.6%. Their LTV jumped from 70% down to 65%.

Why? Those credit card balances were on their personal cards, so it impacted their personal credit. The bad credit score impacted their rate and fees. Now, for this refinance they had already qualified for, they now owed over $6,000 in points alone.

What Is the Bad Credit Cycle?

On flips and BRRRRs, we see this credit cycle happen over and over again.

Investors put the fix-up costs (business expenses) on personal cards. This drives up the balances, and so increases credit usage, and so lowers their personal credit score.

In the earlier example, our client fully intended to use the money from the refinance to pay off the credit card balances. But they can’t get the refinance until the cards are paid off. This is the cycle.

In most instances, you expect to pay the personal cards off with the refinance. But when you go to refinance, you get the unexpected surprise that your credit score doesn’t qualify. In our client’s example, he had actually pre-qualified, but the rate and fees had changed drastically due to the bad credit score.

If this client had accepted the terms of that refinance, he’s going to get less cash out to pay off the cards and put into his next project. The next property will have hefty out-of-pocket closing costs. With all these extra costs, his real estate investing career will slow to a standstill, and he’ll be more dependent on the personal credit cards than ever.

Stopping the Bad Credit Cycle

High personal credit card usage → Bad credit score → No loan, or a loan with unfavorable terms → No or less cash out to pay off the cards → Difficulty getting a loan for the next project

What does this cycle start with?

High usage on personal credit cards.

So there are two solutions we recommend: 1) fixing the high usage, and 2) not using personal credit cards. Here’s how to do both.

Fixing High Usage with a Usage Loan

This is how we helped our client. He had the $40,000 on his personal credit cards reporting on his credit, so we gave him a $40,000 usage loan that does not report on his credit.

The $40k loan from us is secured by another piece of property, or he could have gotten a loan from a friend or family member that also wouldn’t report.

He uses the loan to pay down all the credit cards. Because usage makes up 30% of your credit score, lowering your usage will likely improve your score within 30 to 60 days.

Once our client has used the loan in this way, his score went from 680 back up to 720. He can get the DSCR loan with a half point rather than 3 points, saving him thousands of dollars on the transaction.

Using a Business Card for Real Estate Costs

The usage loan is the fix-it-quick solution. The long-term solution for this bad credit cycle is to use a business credit card for all costs associated with your real estate investing career.

The only difference between a business and a personal card is that it’s in your business’s LLC, and it doesn’t report to your personal credit.

So going forward, as our client uses his cards for future projects, it won’t affect his personal credit score or future financing, since he’ll now use his business cards.

Be aware that you’re getting the right business credit card. Some still report to personal credit, like Capital One.

How to Fix Your Credit

Stop spinning in this credit cycle. Let’s get you back on track.

If you need options to get out of this trap, we could help you with secured lines to pay off those credit cards and getting in the right business cards so this doesn’t happen. Just reach out at Info@TheCashFlowCompany.com. 

Want more information about real estate investing in general? Check out our YouTube channel.

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Which Credit Card Is Right For You: Business vs Personal vs Corporate

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3 types of credit – and why business vs personal cards are the right option for real estate investors.

Your credit score is the driving force behind your financing. Credit score decides:

  • How many lenders will offer you money
  • Your loan-to-values
  • All terms and rates.

By raising your score, you get better financing. Better financing opens up more options for buying deals – you have more money available to you, plus more flexibility and speed in getting that money to buyers.

The business credit card is the simplest way to make that credit score jump for investors. But let’s compare it to two other major forms of credit.

Business and Corporate Credit

Business credit cards are not like corporate credit.

You can apply for a business credit card and have it back in close to a week. However, corporate credit cards are a bit harder. It involves building corporate credit and going through Dun and Bradstreet – which all takes months or years.

Business credit cards are easy, fast, and can be used every day. All you need is a business, and business name, a bank account, and a decent credit score. (Need to lower your usage to improve your score before you get a business card? Ask us about a usage loan.)

As soon as you get a business card, you can start using it to pay for contractors and supplies, which will free up your personal credit cards and raise your score.

Business Credit Card vs Personal Credit Card

One main difference between a business and personal credit card is that a personal one reports on your score and the (right) business one doesn’t.

For a personal card, you must keep your balance less than 30% of your limit. On a business card, you can max it out. In fact, credit card companies actually like when you use more of your business’s limit, and they’ll give you more credit for doing it.

Using a lot of credit is actually a benefit on the business side.

Read the full article here.

Watch the video here:

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The Benefits of a Business Credit Card for Real Estate Investing

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The real estate investor’s credit score solution: the benefits of a business credit card.

Business credit cards are a no-brainer alternative to using your personal cards for your real estate investments.

Most real estate investors use a credit card to pay for the expenses involved in fixing up properties. Doing this, however, raises your balance, which increases your usage. Usage makes up 30% of your credit score, so keeping high balances on your personal card can significantly lower your score.

Weigh the Credit Benefits of a Business Card

It’s important to get all investing expenses off your credit. It not only impacts your business, but it impacts your personal life, too. When you need a personal mortgage, or a new car, or a boat… Your lender will check your credit, and they’ll see the bad score if your usage is out of whack from your business.

A business credit card solves your credit problems in two ways:

  • It helps your credit score. Moving these balances onto a business card takes them off your personal credit. Business credit won’t impact your personal score. This will allow you to get better outside funding.
  • It’s a form of fast, easy, cheap funding. It still allows you the convenience of a credit card – and sometimes at a better rate.

The “best” business credit card for a real estate investor is one that does not show up on your personal report.

Making Real Estate Investing Easier and More Profitable

Our primary focus is making investing easier on the funding side. There are many ways to fill your “money buckets,” whether it’s business credit cards, HELOCs, real people’s money, or loans.

We want to help you with all of it. Reach out at Info@TheCashFlowCompany.com for more step-by-step help on business credit cards and other valuable funding sources.

Read the full article here.

Watch the video here:

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Business vs Corporate Credit: What Exactly Do You Need for Your Real Estate Investing Business?

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For your real estate investments, do you need credit? Does it matter between business vs corporate credit?

We highly recommend that real estate investors use a business credit card for their projects’ expenses.

They save your personal credit score, and you can get some types of cards for 0% interest rates for at least the first year. You can’t beat that low of a rate!

To be clear, however, we’re talking about business credit cards, not corporate credit. Why does that distinction matter?

How Corporate Credit Differs from Business Credit

Corporate credit is next-level and will take some time to obtain. But if you are interested, here is the link.

The major difference between corporate and business credit is how they decide you’re qualified.

  • Business credit is based on your personal credit score. It requires you to personally sign on the debt.
  • Corporate credit is based on your Dun & Bradstreet score. It does not require you to personally guarantee the debt.

Corporate debt takes time and typically does not start with (or get to the point of) issuing credit cards… Especially to us small companies.

Why You Should Use a Business Card in Real Estate Investing

If you use credit in investing, a business credit card is what you need. It accomplishes two big items for funding:

  1. It keeps business purchases from impacting your personal score. Then, your credit score doesn’t negatively impact your other funding.
  2. It won’t show up on your report for lenders to officially count it against you when calculating your debt ratio.

Business credit cards keep debt from impacting your personal funding options.

How Hard Is It to Get Business Credit vs Corporate?

Assuming you have everything you need to get a business card, including a high credit score, a business or sole proprietorship, and a good, non-real-estate related business name, getting a credit card is relatively straightforward. 

Go to a site like bankrate.com or Credit Karma to pick the card that’s best for you. You can also visit Nav’s list of business cards to compare different types.

If you keep balances, then you may want to look at cards with 0% intro rates. You can change them out every year and save a lot of money.

How to Get Business Credit

If you need to set up a business or improve your credit score, reach out to us at The Cash Flow Company. We have ways to help raise your credit score fast, and can guide you in setting up a business.

You can also check out Fund & Grow. Ask us about the discounts they gave us to pass on to you!

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