Tag Archive for: credit score

How to Prepare for Real Estate Loan Applications

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It’s important to look ahead when preparing your loan applications in the real estate game.

In real estate investing, leverage comes from using other people’s money to generate wealth and income. 

The better your leverage, the easier and more profitable real estate investing becomes. 

But how do you find the right loans that can give you that leverage?

Before applying to various lenders, make sure you’re prepared for the basics.

Be Honest

This may seem basic, but it can be really tempting to slip in a few lies when you’re trying to get a deal. Don’t do it.

Lenders do background checks, look at credit, and generally get external confirmation for everything you tell them. Lying not only makes their jobs harder, but your lack of honesty can ruin your reputation with that lender.

Make sure you disclose if you’ve gone through bankruptcy or if you have any credit card debt. 

They will find out if you’re hiding information or stretching the truth, and you’ll get dumped to the bottom of the pile.

Especially About Your Credit Score

One of the first things lenders look at is credit score. That score can determine whether you even get considered for a loan.

It’s better to be honest about a bad credit score and have a detailed plan about how to fix it than to lie. 

If you have a bad credit score, work on fixing it before submitting loan applications.

If credit score is something you’re concerned about, there are ways to raise your score, including looking into usage loans. 

The better the score, the better terms a lender will offer. The better the terms, the better your leverage. 

If you have questions about raising your score or are interested in discussing a usage loan, you can contact us here, and we’ll be happy to discuss your options.

Learn More

Read the full article here.

Watch the YouTube video here:

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Mythbusting Business Credit Cards

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A lot of people are afraid to make the switch to business credit cards because they’re unfamiliar. These are the three most common concerns we hear from our clients who need to make the switch to business credit cards for real estate.

1. “It’s a huge switch from my current system and is going to take forever.” 

FALSE

People hear terms like “corporate credit” or “business credit card” and think it’s going to be a massive change that they’re going to need to get done at Bradstreet.

That’s not the case at all!

Essentially, you’re going to look for the same credit cards you have now—ones with 0% APR, cash back, travel miles, or whatever you like. Look for a credit card with the perks you enjoy and open it in your business’ name. 

Sure, it’s technically a “business credit card,” but you shop around the exact same way as you would for a personal card. 

2. “Business credit cards still affect my personal credit scores.” 

FALSE*

Here’s the great news: so long as you’re paying it off on time, your business credit card will never report on your personal credit score.

*Unfortunately, if you have a few late payments, it will start reporting. Also, there are a few business credit cards that do report on your personal score. Always read the fine print so that you can avoid these cards and companies.

Therefore, if you pick a good card and are good about paying off your balances, this shouldn’t be a huge concern. So long as you pay on time, it will never report your balances or usage. This protects your personal credit score for real estate investors which is the whole goal of getting a business credit card.

If you need help figuring out which cards are best for your business, contact us!

3. “I need to have an actual business for a business credit card.”

TRUE

Yes, it’s true, but don’t panic if you’re not set up for this yet! 

You do need a business, an LLC, and a business checking account. 

If you already have a business set up, obviously making the change will be super easy. However, if you need any help getting these items in order, let us know, and we’d be happy to help.

A poor credit score is a huge inhibitor for investors. It’s worth doing a little extra work on the front end to set up something that’s going to open doors for you and fix one of your biggest weaknesses.

Read the full article here.

Watch the full video here:

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How Personal Credit Cards Tank Credit Score for Real Estate Investors

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It’s time to stop using your personal credit cards which can ruin your credit score for real estate investors.

Personal credit cards are not only costing you opportunities, but also time, frustration, and cost. And here’s the deal: it’s easy to fix personal credit score issues by switching to a business credit card. 

Why Are Personal Credit Cards Dangerous for Real Estate Investors?

It all comes back to credit score.

The vast majority of people who call us for advice in the real estate investing journey have issues with credit. 

Credit usage is confusing for a lot of people. If this is something you’ve also had questions about, we recommend checking out our previous article about basic credit scores.

In essence, credit scores are based on a ratio that compares usage to available balance. If you’re using personal credit cards for real estate investing (a job that requires a lot of large transactions), it drives your usage way up.

When your usage skyrockets, your credit score will go down even if you’re still paying off the card on time. Basically, personal credit cards are not designed for business-level usage.

With a poor credit score, you’re going to have a much harder time leveraging the best deals, terms, loan to values, and flexibility. 

Real estate investing is all about using the investments of others (including the credit card company’s) to get your work done so you can pay them back and turn a profit. If your credit score is low, you’re going to struggle. You won’t be offered the best terms which drives up the overall cost of your projects.

Very little matters as much as credit score for real estate investors.

Switching to Business Cards Helps Your Credit Score!

At The Cash Flow Company, we are more than happy to help you make the transition to business credit cards.

We can…

  • Get you a private usage loan to raise your personal credit score so you’re eligible for more business card options.
  • Help you figure out which business credit card is right for you.
  • Help you set up your investment work as a business to protect your personal credit score.
  • You can also look into our partner company Hard Money Mike that offers hard money loans that you could use to raise your score as you look for business cards.

We want to make sure you’re prepared for opportunities even before they come your way. Real estate investing is a time-sensitive field, and the fewer obstacles you have to work through, the more successful you’ll be.

Read the full article here.

Watch the full video here:

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Why You Should Use Business Credit Cards for Real Estate Investing

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It’s time to stop using your personal credit cards and switch to business credit cards for real estate investing.

Personal credit cards are not only costing you opportunities, but also time, frustration, and cost. And here’s the deal: it’s easy to fix personal credit score issues by switching to a business credit card. 

Why Are Personal Credit Cards Dangerous?

It all comes back to credit score.

The vast majority of people who call us for advice in the real estate investing journey have issues with credit. 

Credit usage is confusing for a lot of people. If this is something you’ve also had questions about, we recommend checking out our previous article about basic credit scores.

In essence, credit scores are based on a ratio that compares usage to available balance. If you’re using personal credit cards for real estate investing (a job that requires a lot of large transactions), it drives your usage way up.

When your usage skyrockets, your credit score will go down even if you’re still paying off the card on time. Basically, personal credit cards are not designed for business-level usage.

With a poor credit score, you’re going to have a much harder time leveraging the best deals, terms, loan to values, and flexibility. 

Real estate investing is all about using the investments of others (including the credit card company’s) to get your work done so you can pay them back and turn a profit. If your credit score is low, you’re going to struggle. You won’t be offered the best terms which drives up the overall cost of your projects.

Credit scores matter.

Mythbusting Business Credit Cards 

A lot of people are afraid to make the switch to business credit cards because they’re unfamiliar. These are the three most common concerns we hear from our clients who need to make the switch to business credit cards for real estate.

1. “It’s a huge switch from my current system and is going to take forever.” 

FALSE

People hear terms like “corporate credit” or “business credit card” and think it’s going to be a massive change that they’re going to need to get done at Bradstreet.

That’s not the case at all!

Essentially, you’re going to look for the same credit cards you have now—ones with 0% APR, cash back, travel miles, or whatever you like. Look for a credit card with the perks you enjoy and open it in your business’ name. 

Sure, it’s technically a “business credit card,” but you shop around the exact same way as you would for a personal card. 

2. “Business credit cards still affect my personal credit scores.” 

FALSE*

Here’s the great news: so long as you’re paying it off on time, your business credit card will never report on your personal credit score.

*Unfortunately, if you have a few late payments, it will start reporting. Also, there are a few business credit cards that do report on your personal score. Always read the fine print so that you can avoid these cards and companies.

Therefore, if you pick a good card and are good about paying off your balances, this shouldn’t be a huge concern. So long as you pay on time, it will never report your balances or usage. This protects your personal credit score for real estate investors which is the whole goal of getting a business credit card.

If you need help figuring out which cards are best for your business, contact us!

3. “I need to have an actual business for a business credit card.”

TRUE

Yes, it’s true, but don’t panic if you’re not set up for this yet! 

You do need a business, an LLC, and a business checking account. 

If you already have a business set up, obviously making the change will be super easy. However, if you need any help getting these items in order, let us know, and we’d be happy to help.

A poor credit score is a huge inhibitor for investors. It’s worth doing a little extra work on the front end to set up something that’s going to open doors for you and fix one of your biggest weaknesses.

Switching to Business Cards is Easy With Our Help!

At The Cash Flow Company, we are more than happy to help you make the transition to business credit cards.

We can…

  • Get you a private usage loan to raise your personal credit score so you’re eligible for more business card options.
  • Help you figure out which business credit card is right for you.
  • Help you set up your investment work as a business to protect your personal credit score.
  • You can also look into our partner company Hard Money Mike that offers hard money loans that you could use to raise your score as you look for business cards.

We want to make sure you’re prepared for opportunities even before they come your way. Real estate investing is a time-sensitive field, and the fewer obstacles you have to work through, the more successful you’ll be.

Please reach out to us at Info@TheCashFlowCompany.com.

We can’t wait to help you on your investment journey!

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Real Estate Investors: How to Win in 2024

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How can real estate investors WIN in the changing 2024 market?

We’re expecting to see more foreclosures and more properties available at discounts in the coming year which is ideal for real estate investors in the business of fix and flips and rentals. 

No matter where you came from or whether you have a college degree, anyone with the willingness to work and learn can make good money in real estate. 

We’re here to share a few tricks so that, as opportunities show up in the coming year, you’re set for success. 

Preparing as Real Estate Investors

There are typically two sides of real estate investing: 1) finding good properties and 2) financing. 

As we said before, you need money to make the money. Today, we want to look at the financing side of things so you’re ready when the good properties show up. 

As an investor, it’s important that you’re attractive to lenders. Lenders, as a rule, want to lend you money, but it’s important to understand what they’re really looking for as well as how you can diversify your money bucket to maximize your success. 

Filling Your Real Estate Money Bucket

For any project you do, you need money. We refer to this collection of money as your money bucket. 

The money in your bucket comes from two sources: 1) a lender and 2) you.

Both of these areas of funding are going to come together and fill the bucket to finance your project. 

1. Be Honest With your Lender and Get Your Projects Done

This may seem obvious, but make sure you’re honest with your lender.

Make sure you’re upfront about your financial history. It should go without saying, but don’t try to hide that you’ve had a bankruptcy or defaulted on a loan in the past. 

If you’re concerned about your financial history, trust us: It’s much worse to hide it and make the lender find out on their own (which they will).

Once they find out, it will be harder for you to get a loan. And if you do find a loan, your options are going to be severely limited—not just because of the history, but even more so because you hid important information. 

Options are super important for real estate investors. 

Options drive down the costs of loans, and anytime you pay less for money, the more money there’s going to be in your bucket. 

Similarly, when you say you’re going to get a project done, get it done. Whether it’s a flip or a BRRRR, construct a solid timeline on the front end so you and your lender are on the same page.

It’s often a good idea to put in a bit of a cushion when talking to your lenders so that you don’t panic if there are minor delays in your project. 

Lenders want to see honest people who are doing their best. Most lenders are happy to support honest investors who are upfront with them with more money, more funding, more options. 

2. Your Credit Score Matters

The better your credit, the more options you’ll have. 

Impact of Credit: Banks love clients with high credit scores. The higher the score, the more options they’re likely to offer. 

As with finding a loan, the more options banks offer, the more likely you are to find a great deal.

Personal vs. Business cards: Using personal credit for investing can quickly turn into a problem. 

Using personal credit cards or lines of credit for business projects can drive people’s scores down.

We strongly recommend using business credit cards for your real estate investing. You should still make sure you’re paying everything on time, but that business credit card in your name isn’t going to be reported on your personal credit report.

This keeps your credit score higher as you’re looking for loans.

Lines of Credit: Having a variety of credit lines, and opening those strategically, helps real estate investors fill their money buckets. Lines of credit in business credit cards, HELOCs, etc. can get you more prepared for down payments, earnest money, repairs, and more. 

It’s helpful to have backup lines of credit that are ready for when you need money for time-sensitive deals. 

Fill your bucket and your options. 

3. Finding Real People’s Money as Real Estate Investors

When trying to fill your money bucket, you shouldn’t overlook your friends and family. 

Look out for real people in your life who are willing to invest in your project. Even if they only want to invest $10K, that can still help you cover your earnest money or smaller payments.

A lot of people are looking for private investments that offer better returns than traditional banks. Working with the real people in your life can make a huge difference in your ability to fund your project.

If you need help with navigating those personal investments, we’re happy to help. We have a lot of experience working with diverse money buckets and know how to keep notes for your financial records so those private loans are correctly accounted for.

Calling All Real Estate Investors: Prepare for 2024!

It’s important in 2023 to get ready for what’s coming in the future. 

Make sure you have lenders set up from hard money to neighbors and everyone in between. Check your credit scores now to ensure you have the options that will make your investing a success. 

You can also check out our free and easy tools to help get you ready for the upcoming market. We even have a free credit score checklist for you to use.

As always, we’re always happy to help! If you have any questions about the upcoming market, your loan options, or how to fix your credit, reach out to us at Info@TheCashFlowCompany.com.

You can also check out our YouTube channel to learn more about real estate investing.

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Requirements for DSCR Loans in 2023

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How has the changing landscape of real estate in 2023 affected requirements for DSCR loans? What are lenders looking at and how can you find the right deal for you?

The Power of Shopping Around

While this isn’t new, shopping around is very important in 2023. With a growing number of lenders loosening their requirements, finding a lender that specializes in projects like yours can make a big difference. 

If your project is unique or you’re dissatisfied with the rate you’re offered, reach out to mortgage lenders or brokers who have the power to offer something different. 

Requirements for 2023

Products change constantly, so it’s always a good idea to talk to professionals in your area, particularly when it comes to how DSCR lenders look at funding, financing limits, and credit:

Gift Funding Flexibility:

Lenders are trending towards having looser rules around gift money. Previously, it was better to have seasoned money in your account. Now, so long as the money is there for closing and it comes from your account, you’re usually set. That said, if you have any questions about gift funding, talk to your particular lender.

Property Ownership Limits:

A few lenders are also lifting their limits on how many properties you can finance. Previously, the majority of companies limited investors to 5-10 properties. Now, it’s fairly easy to find lenders without those restrictions.

Credit Influence:

Although DSCR loans don’t look at your income, they still look at credit. The better the credit score, the better the loan to value ratio. Also, the higher the DSCR calculation (rent ÷ income), the better the terms.

Standard Interest Only Options:

As always, there are interest only options. Depending on your project and the current market, these aren’t always the most helpful, but they are available. 

 

Read the full article here.

Watch the full video here:

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Credit Scores Explained

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Credit scores and loans

Understanding credit scores is critical in your journey as a real estate investor.

Lower credit scores mean you might not get a loan you’re applying for. Or you might have to put more money into a deal. If you have a bad credit score, you’ll typically see higher rates or terms which make dealing with the market frustrating. 

If you’re a real estate investor or even business owner, it’s okay to use your personal credit for your business. But it’s absolutely critical for you to understand how credit scores work.

Using personal credit works, but you want to be careful not to run it up to where you’re handicapped with higher rates. Higher rates quickly turn into higher down payments and costs overall. 

You want to build your credit score so it works for you instead of against you.

How Credit Scores Work

Credit card usage is the leading reason we see for low credit scores.

Surprisingly, the amount owed doesn’t affect the score nearly as much as the ratio of usage compared to the available balance.

For example, if two people owe $1,000 on their credit cards, you might expect similar credit scores since they owe the same amount. But that isn’t how it works!

Their FICO credit score will reflect the difference in their credit limits. 

Here’s how it works:

Let’s say Person A has a credit limit of $2,000, resulting in a 50% credit usage ($1,000 owed divided by $2,000 credit limit). In contrast, Person B owes $1,000 but has a credit limit of $5,000. Person B then has only a 20% credit usage ($1,000 owed divided by $5,000 credit limit). 

FICO and other credit-rating agencies consider credit usage ratios when determining credit scores. They want you to use your credit cards, but not too much. Therefore, FICO will typically raise your score when you have usage between 20%-30%. 

This can get complicated, and we recommend moving everything to a business credit card. Keeping your personal credit score separate from your official investing credit can save significant stress if your personal score dips.

If you do choose to continue using your personal credit for your business, it’s important to make sure you understand how usage affects your score.

Read the full article here.

Watch the full video here:

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How to Fix High Credit Usage as a Real Estate Investor

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Avoid the investor bad credit cycle and fix high credit usage using these two simple tricks.

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.

Fix High Credit Usage with a Usage Loan

We had a client who racked up $40,000 on his personal credit cards on the fix-up of a rental property. Since it’s on his personal cards, that high usage reports on his personal credit. To fix this, we gave him a $40,000 usage loan (one 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.

Business Credit Cards 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.

Read the full article here.

Watch the video here:

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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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