Tag Archive for: Credit score tips

4 Ways Bad Credit Impacts Loans for Real Estate Investors

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Ease of funding makes real estate investing easy or hard. Here are 4 ways bad credit impacts loans.

In our 20+ year history in the lending world, we continually see credit usage as the #1 thing keeping real estate investors from obtaining the best funding possible.

Credit is the main reason funding is granted or denied. To win this game, you need to understand this and work to put yourself in the best position to succeed.

Let’s go over 4 ways that bad credit impacts loans and what you need to succeed.

The 4 Ways Bad Credit Impacts Loans

The 4 most negative potential impacts due to low credit scores for real estate investors are:

  1. Being denied a loan (so you can’t purchase or refinance a property)
  2. Cash flow takes a hit with higher rates, around 1-4%
  3. Higher closing costs, around .5 to 2%
  4. Being required to put more money down on a property (lower LTV on loans)

Let’s dive in to what each of these means for an investor.

1. Bank Turn Down

If lenders won’t lend to you, then it’s almost impossible to invest and make money. No loan, no property – no property, no investing.

Sometimes this means no one will lend to you with bad credit. Other times, you can squeeze in, but pay more than your competitor.

2. Paying Higher Interest Rates

Paying higher rates brings a lot of setbacks.

With a bad credit score, you might need to go to a different type of lender who will charge more. If not that, then you’ll at least be dropped to a lower lending tier (ie, higher interest rate) with the cheaper lender.

In any case, you’ll feel the hit of higher rates in your cash flow.

To show this, here’s an example of a 2.5% difference in rate on a $300,000 mortgage:

  • Rate of 6.25% = monthly payment of $1,847.15
  • Rate of 8.75% = monthly payment of $2,360.10

An investor with a 680 score might get the 8.75% rate. Another investor with a 780 could get closer to 6.25%. That’s over $500 more per month one investor pays versus the other.

More money means more you can re-invest. Another example of why it is easier to succeed with better funding.

3. Paying Higher Fees

Almost every lender has pricing tiers. These tiers are usually tied to credit scores in some way.

The lower the score, the higher the cost of the loan. With bad credit, some lenders jack up the rate and others jack up the fees.

These fees typically come in tiers similar to this one from a bridge lender:

In this example, on a $300,000 loan, you will pay an extra $1,500 to $3,000 more than your competitor with great credit for the same loan.

4. Lower LTV Funding

Credit score is the main reason some investors can get away with only putting 10% (or even 0%) into a project while others have to bring in up to 25%.

In our $300,000 property example:

  • At 10% down, you bring in $30,000
  • At 25% down, you bring in $75,000

That extra $45,000 could keep you out of deals and or limit the number of deals you could have going at a time.

Keep Bad Credit from Impacting Loans

Overall, we need funding to succeed in real estate. The cheaper, easier, and faster it is, the more opportunities and success it creates. Bad credit impacts the loans you can get for your investments.

Check out these other tips to quickly raise your credit score on our YouTube channel.

You can also send us an email anytime with questions about your credit and real estate investing loans at Info@TheCashFlowCompany.com.

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Real Estate Investing, Credit Usage, and Your FICO Credit Score

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How do they come up with your FICO credit score? And why is it such a big deal?

Usage is a big deal when it comes to your credit score.

But it’s not the largest factor in determining your credit score.

Let’s go over what parts make up your FICO credit score.

What Makes Up My FICO Credit Score?

What’s the biggest factor in your credit score? 

Your payment history accounts for 35%.

Are you making payments on time? Are you skipping payments? If so, this will tank your FICO credit score.

If you’re a real estate investor or business owner who does not have a good payment history, then there’s only one thing that can help that: Change your habits. Make all payments on time.

The next biggest factor, at 30% is credit usage. Credit usage and payment history together make up 65% of your credit score.

Here are all the other considerations that go into your FICO score:

  • Credit History: How long you have had credit? – 15%
  • New Credit: How many new accounts and inquiries? – 10%
  • Credit Mix: Do you have a variety of types of debt? – 10%

Pay Attention to Usage

If you’re paying your bills on time, then usage is the largest factor in your credit score.

But how do you keep real estate investment project and your business moving along without being able to use your full credit limit?

One suggestion to this problem is to move those personal cards over to your business. This way, you can still use them, but you don’t have the negative impact on your credit score.

How to Help Your Credit Score

Leverage is king for investors. A major factor in getting leverage and loans is your credit score.

A low FICO credit score is a costly issue for investors.

Check out these other tips to quickly raise your credit score on our YouTube channel.

Send us an email anytime with questions about your credit and real estate investing loans at Info@TheCashFlowCompany.com.

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Credit Myth-Busting: Credit Card Usage Percentage

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Your credit card usage percentage is NOT the amount of debt you owe.

Usage is a percentage based on the amount of credit you have used compared to the amount available. It is not based on the amount of debt you owe.

Two people with the same job, age, gender, etc., can have the same amount of debt, but their credit scores can be completely different.

How does it work?

How Credit Card Usage Percentage Works

Let’s take these two similar people and break down their credit:

  • They both owe $1,000 on credit cards
  • Person A has a credit limit of $1,200
  • Person B has a credit limit of $5,000

It doesn’t matter that they owe the same amount. What matters is that what they owe in relation to their limit.

So:

  • Person A has a credit usage of 83.33% ($1,000 owe/$1,200 limit)
  • Person B has a credit usage of 20% ($1,000 owe/$5,000 limit)

They owe the same amount, but Person A’s usage of 83.33% will negatively impact their score. Meanwhile, Person B’s 20% credit usage percentage will positively impact their score.

How to Avoid the Risks of a High Credit Usage Percentage

So if you can only use 20% of your credit limit before hurting your score… What’s the point of having a credit card at all?

As a real estate investor, the best way to help your score is move your credit card debt to a business card.

The second helpful step is to call your credit card company and ask them to raise your limits. This one trick will automatically raise your score (and lower your usage percentage!).

Other Credit Tips

Check out these other tips to quickly raise your credit score on our YouTube channel.

Send us an email anytime with questions about your credit and real estate investing loans at Info@TheCashFlowCompany.com.

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What Is Credit Usage? (And Why It Matters)

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Your credit score is key to gaining leverage. But usage is key to your score. So what is credit usage?

In simple terms, usage is the amount you have outstanding on your credit cards (and loans) compared to the maximum credit limit the banks have granted you.

Still confusing? Let’s break down exactly how credit usage works.

What Is Credit Usage?

Let’s look at an example with easy-to-follow numbers: 

  • You have a credit card with a limit of $2,000 and a balance of $1,000. (Aka, you’ve put $1,000 worth of purchases on this card. You’re allowed to put up to $2,000 on it.)
  • This means your credit usage is 50% ($1,000/$2,000). So you’ve borrowed 50% of the amount you’re allowed to borrow.

How Does Usage Impact Credit Score?

The higher your usage, the lower your credit score.

In other words, the higher your balances compared to your available credit, the worse your credit score.

If you put a lot of purchases on a credit card, or take a lot from a HELOC or other line of credit, compared to how much of that credit you can use up, then it will negatively impact your score.

What is the Best Usage for Your Credit Score?

Ideal usage is 20% or less. However, ideal usage is not 0%.

You should always use some credit, but never all. To get ideal usage on our example credit card with a $2,000 limit, you should keep around $400 on the card.

Does Credit Usage Matter to Investors?

Usage is the number one factor that holds back real estate investors from getting affordable loans. That’s because usage makes up 30% of what determines your credit score.

Note: Credit usage is not the only factor in your credit score. 35% of your score is determined by how you make (or do not make) your payments. If you’re paying late, or not making payments at all, then you will not have a good score or find affordable loans.

What Is Credit Usage? – How to Learn More

Concerned about your credit? Want to learn more about your credit score and your investing career?

Check out our YouTube videos about credit.

Send us an email anytime with questions about your credit and real estate investing loans at Info@TheCashFlowCompany.com.

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Credit Score 101: How Your Credit Score is Robbing You

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How Your Credit Score is Robbing You

Credit Score 101: How Your Credit Score is Robbing You

In this session of Credit Score 101, we’d like to introduce you to Sally Payday and Joe Robber.

Sally Payday is a wonderful guest. When she shows up on your front doorstep, she brings a smile, hug, and a bag of cash with her.

Joe Robber, on the other hand, doesn’t knock. He strolls right inside and steals money out of your wallet. Then takes it and runs!

So, who can you expect a visit from? Sally? Or Joe?

Well, it all depends on what credit score Mr. FICO gives you.

Mr. FICO can be a tough cookie, especially if you:

  • Forget to pay your bills
  • Overuse your credit cards
  • Or don’t use enough credit…meaning, you don’t have enough or any

Believe it or not, having debt can be a good thing. Because when you don’t have any, Mr. FICO doesn’t know you exist. Therefore, he can’t give you a credit score—or he can only give you a low one.

And if you have a low score, then, unfortunately, you can expect a visit from Joe Robber. Because a low score means you pay higher interest rates on your house, car, and other loans.

And if you’re paying higher rates, then Joe gets to take more of your money.

Which makes him a very happy man.

He loves stealing all the cash you could be using to save up for a dream vacation, a healthier lifestyle, or a more comfortable retirement.

Meanwhile, Sally Payday takes a different approach.

She doesn’t like to take money. She likes to make sure it stays in your bank account. But she can only visit people who have good credit scores. Because a good credit score means you pay cheaper rates.

And cheaper rates mean lower bills. Which means you can pay for your trip, gym membership, retirement, or anything else that would make your life better.

Sally Payday and Joe Robber are not one-time visitors. They show up on your doorstep every month.

And every month, Sally brings cash, and Joe steals it.

Which one would you rather welcome into your life?

Because it’s really your choice.

Everyone can have a good credit score. Even if you don’t have one now, it’s within your reach. You don’t need to keep letting Joe in the house. And Sally’s just standing there on the sidewalk, ready to present you with a bag of cash.

Want to find out how you can raise your score? Check out some of our other videos on our Youtube channel.

You can also join our live series How to Invest in Real Estate. Every Thursday at 11 AM MST, real estate expert, Mike Bonn answers all of your questions and shares expert tips on improving your credit score, investing in real estate, and building a comfortable retirement.

Happy investing!

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Credit Score Tips: How To Reel in Thousands with Your Credit Score

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How to Reel in Thousands with Your Credit Score

Credit Score Tips: How to Reel in Thousands with Your Credit Score

Let’s dive into some credit score tips today.

Did you know your credit score is the bait in your life that will either catch big prizes…or big flops?

If you toss YOUR credit score in life’s lake, what can you expect to catch? Well, it depends on what you have in your tackle box. And what you have in your tackle box depends on how well you’ve taken care of your credit score.

For example, if you pay your monthly bills on time, keep your credit usage below 30%, and focus on building a good credit mix (meaning you have a house payment, a car payment, credit cards, insurance plans, etc.), then you probably have some excellent lures and juicy bait to toss in the water and catch something big!

We’re talking about your dream house, a new car, a heftier retirement account, and just about anything else you’ve hoped to have in your life.

Because the better your credit score, the lower your rates. And the lower your rates, the more money you accumulate over time.

Think about it. If you have a score of 760 or higher, then you’ll likely reel in at least an extra $250,000 by the time you retire. All because you paid lower interest rates than someone who had…well, bad bait.

Those who have bad bait in their tackle boxes tend to have scores under 650.

This kind of bait isn’t going to get chomped on. It won’t even get a lot of nibbles. In fact, the only thing these subpar credit scores will reel are rejections and high interest rates. Which means you won’t get to feast on a dreamy life. More likely, you’ll have to scrounge and struggle to get what you want. Be it a house, a car, a loan, or even a small retirement account.

And that extra $250,000 that people accumulate in their bank accounts when they use good bait? Forget about it!

But fear not!

The good, tasty bait is available to anyone who wants it. You just have to put your pole down and start working on boosting your credit score. Which isn’t even all that hard. It just takes a few quick, consistent steps to start raising it.

Again, think about:

  • Paying your bills on time every month
  • Keeping your credit usage under 30%
  • Getting a loan to help you pay off your credit cards

Check out some of our other videos for credit score boosting tips.

If your tackle box (aka, your credit score) needs a little help, our team is here to help. Because we truly believe everyone deserves to fish in a lake that’s filled with juicy prizes.

Happy investing!

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