Tag Archive for: usage loan

How Your Credit Score Impacts Loan Approval

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Credit scores and loans

Leverage/loans are the key to building a successful real estate business.  Credit scores are becoming more and more of a factor on who is approved for loans and or denied.

All serious investors must understand how to win at the lending game. A large part of that is understanding and managing your credit score.

Better scores equal better loans.  Better loans help create wealth and income faster.

 

How Your Credit Score Impacts Loan Approval

Lenders use your credit score when deciding if and how they offer you credit, such as mortgage, car loan or a credit card. Your score also affects terms and rates associated with these loans.

Your payment history is the cornerstone of your credit score, but other elements also play a part. These could include:

Your credit score is a number.

Lenders use your credit score to assess your risk as a borrower, using data reported to credit bureaus such as Equifax(r), Experian(r), and TransUnion(r).

Your credit score can have an immense impact on your life. It can determine whether a lender approves of an application for a mortgage.

Your credit score takes into account how you’ve paid past bills and the debt that’s currently outstanding, along with your mix of accounts (credit cards, retail accounts, installment loans (car or student loans) and finance company accounts). Lenders also look at how long it has been used; generally speaking it should remain under 30%.

Your credit score is a factor.

Many individuals don’t realize how important their credit score is in loan approval decisions. Lenders use it to assess whether someone should qualify for mortgage, business loans as well as determine interest rates that borrowers will pay on these loans.

One of the key factors affecting one’s credit score includes length of history, debt-to-credit ratio, payment history and types of accounts held. An equally significant element is how long since any negative event such as missed payments or bankruptcy occurred. Either can have an enormously detrimental effect on one’s score.

Lenders prefer to see a mix of retail, finance company and installment loans in your credit profile. Too many new accounts may raise red flags.

Your credit score is a red flag.

Lenders use credit scores to gauge whether or not someone will repay what they borrow. A higher score demonstrates responsible financial behavior.  Higher scores will help qualify an applicant for better terms on loans.

Your credit score is determined by many factors, including payment history, amounts owed, length of credit history, new accounts opened and mix. One keyway you can improve your score is paying debts on time: this component accounts for 35% of FICO scores and 30% of VantageScores.

Excessive new account activity can also lower a credit score. This factor is measured by the total number of hard inquiries on your report; these could include applications for new credit as well as inquiries made by lenders to pre-qualify you for loans or credit cards.

Your credit score is a good thing.

Your credit score demonstrates your reliability as a borrower and determines the likelihood that a lender will approve of you for a loan. Furthermore, it affects interest rates you will pay, potentially saving thousands over the course of your loan’s lifespan.

FICO or VantageScore scores are calculated based on information found in your credit reports. This information comes from the three major bureaus, which contain payment history, utilization rates and age information of accounts.

Setting and making regular on-time payments are two effective strategies for increasing your scores, along with keeping revolving balances to an absolute minimum. Lenders tend to prefer when their borrowers use no more than 30 percent of available revolving credit available.  Having multiple types of loans like mortgages, auto loans, and credit cards may also boost your score. Keep in mind that your score may change with new information appearing in your report over time.

 

Need a loan to increase your score in less than 30 days?  Credit score usage loan.

How Your Credit Score Impacts Loan Approval. Credit usage loan.

Credit scores and loans

 

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3 Strategies to Raise Your Credit Score

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If you’ve ever wondered how to raise your credit score overnight, you’ve come to the right place.

Let’s take a look at three easy strategies to help you prepare for this financial gain: 

1. Increase Available Credit to Lower Usage

Banks look for an ideal credit usage of around 30%. This means that you’re only spending about 30% of the available balance.

For example, if you have a maximum credit line of $1,000 and you’re frequently spending $800, that is 80% usage. When lenders see such high usage, it tells them you’re really pushing the limit of that credit. Often, high usage signals a struggle to meet financial obligations.

You can fix this in two ways:

The first is to apply for a higher spending limit as noted above. The second is to lower your usage. If you’re working in real estate investing, chances are lowering usage is difficult, so we recommend asking your credit card company for a higher limit. 

2. Pay Extra to Raise Your Score

Another significant factor in calculating your credit score is the monthly reported balances to the credit bureaus. 

A good way to quickly raise your credit score is to pay extra whenever possible. If you have a little extra cash at the end of the month before your statement is due, this is an easy way to keep a negative report from being filed.

The score will go up, and the credit bureau (and you!) will be happy.

3. Get a 60-90 Day Note or Usage Loan

If those first two strategies don’t really work for you, then you can always take a third approach: find a loan.

You can apply for a short-term 60 or 90 day note. These are available from most banks, or you could look to family and friends for the small loan. You can also go through private lenders like us for a usage loan. 

A usage loan allows you to move the credit card balance off of that card (and away from your credit score). It can fix usage issues instantly as might be obvious by the loan’s name.

Also, by moving that balance to a different place, you’ll often find better deals which can allow you to pay off the usage loan more easily than you could have paid off the credit card.

 

Read the full article here.

Watch the full video here:

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How to Boost Your Credit Score Overnight

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If you’ve ever wondered how to boost your credit score overnight, you’ve come to the right place.

Having a strong credit score is like having a really good baseball team. It doesn’t guarantee an instant win, but it sure helps! The better your team (and credit score), the more home runs you can look forward to in your investment season. 

When you win the credit score game, you win countless opportunities. These include good rates, good loans, and more opportunities that can, in the end, add up to hundreds of thousands of dollars.

What is a Good Credit Score and Why is it Important?

Typically, banks consider a credit score “good” when it’s 700 or higher. 

The higher your score, the better your chances of taking home a big trophy. 

It’s important to note that not every lender is equally concerned with credit score. Some private money lenders care more about the specific deal or their relationship with the investor. This can be really helpful to keep in mind if you need to apply for a usage loan or some other method of raising your credit score.

3 Strategies to Boost Your Credit Score

Let’s take a look at three easy strategies to help you prepare for this financial gain: 

1. Increase Available Credit to Lower Usage

Banks look for an ideal credit usage of around 30%. This means that you’re only spending about 30% of the available balance.

For example, if you have a maximum credit line of $1,000 and you’re frequently spending $800, that is 80% usage. When lenders see such high usage, it tells them you’re really pushing the limit of that credit. Often, high usage signals a struggle to meet financial obligations.

You can fix this in two ways:

The first is to apply for a higher spending limit as noted above. The second is to lower your usage. If you’re working in real estate investing, chances are lowering usage is difficult, so we recommend asking your credit card company for a higher limit. 

2. Pay Extra

Another significant factor in calculating your credit score is the monthly reported balances to the credit bureaus. 

A good way to quickly boost your credit score is to pay extra whenever possible. If you have a little extra cash at the end of the month before your statement is due, this is an easy way to keep a negative report from being filed.

The score will go up, and the credit bureau (and you!) will be happy.

3. Get a 60-90 Day Note or Usage Loan

If those first two strategies don’t really work for you, then you can always take a third approach: find a loan.

You can apply for a short-term 60 or 90 day note. These are available from most banks, or you could look to family and friends for the small loan. You can also go through private lenders like us for a usage loan. 

A usage loan allows you to move the credit card balance off of that card (and away from your credit score). It can fix usage issues instantly as might be obvious by the loan’s name.

Also, by moving that balance to a different place, you’ll often find better deals which can allow you to pay off the usage loan more easily than you could have paid off the credit card.

We Can Help!

If you take one, two, or all three approaches to boosting your credit score, then you should see better deals flying your way almost immediately.

If you want to discuss options such as a usage loan or even business credit cards, reach out to us at Info@TheCashFlowCompany.com. 

Our team is always ready to help.

We’re eager to set you on a path that helps you make the kind of money you need to live the life you want.

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Credit Score Impact: What You Need to Know About Loan Rates

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How can your credit score impact different types of loans in the real estate investing world?

Credit score impacts investors potentially more than anything else. Lenders will adjust the rates and terms of loans based purely on the three digits of credit score on a person’s financial records. 

Leverage is the key to successful real estate investing, and understanding the impact of credit score is a critical facet of that leverage. 

This article uses real-life examples to illustrate the difference a good credit score makes in the investment world.

How Does Credit Score Impact Fix and Flip Loans?

Let’s compare two clients: 

  • One (Person 1) has a low credit score of 660
  • The other (Person 2) has a high score of 740

These numbers are based on real clients who have approached us for loans.

What Changes?

If you look at the way the numbers worked out in the chart above, you’ll notice that the actual interest rate is the same for both clients.

Obviously credit score can impact a rate, however it’s also common for the impact to be even simpler. In this situation, the lender simply gives less money to clients with lower scores.

In this scenario, the lender only offered 85% of the purchase price to the person with the lower credit score. The person with the higher score ended up having 85% of the purchase price covered as well as 100% of the rehab costs. 

The Cost of a Low Score

If we estimate the closing costs for Person 1’s project at around $7,500 and combine that with the leftover 15% of the purchase price and 85K rehab, the cost of a low credit score starts to take shape. In our example, Person 1 will need to find over $171,000 of additional funding simply because they had a lower score.

Even when the rates aren’t affected, a low credit score is going to cost more in the long run. It’s hard to do multiple projects when you have to bring in that much money on your own. 

How Can Credit Score Impact DSCR Loans?

Using a similar example, let’s look at how DSCR loans can be impacted by a low credit score. We’ll use the same clients:

  • One (Person 1) has a low credit score of 660
  • The other (Person 2) has a high score of 740

We see a lot of clients looking at cash out refinancing, so we’ll look at that type of project.

What’s the Difference?

If Person 1 has a 660 credit score, not only will they likely struggle to find lenders, but 65% is about the best they could look for. This directly translates into less money out of that property.

In contrast, Person 2 with a 740 score should be able to fairly easily get 75%. The more money out, the better your leverage.

As you can see in the chart above, not only does the person with a lower credit score get less cash out, but their rate is also higher which raises their monthly payments. 

Credit Score Matters

Although at first glance, it’s tempting to just look at the monthly payments and think, “It’s not that big of a difference,” don’t fall into that trap!

The person with the higher score not only has a lower monthly payment, but because they also got a higher Cash Out % which gave them an additional $35,000 out. 

Having that good credit score makes it possible to keep cash flowing. If you’re serious about investing, your credit score matters.

How to Raise Your Credit Score

If you’re serious about real estate investing, you need to keep your credit score up. A low score is really going to cost you over time by strangling your cash flow. 

But how can you fix a bad credit score?

There are a lot of options that can help you raise your credit, including usage loans, credit card strategies, or various tips. 

If you’re interested in learning more about how credit scores affect investment opportunities or need help raising your score, reach out to us at Info@TheCashFlowCompany.com.

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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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Your Real Estate LLC: Every Member Matters

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How the partners in your real estate LLC decide your loan…

We had a client come in recently with a low credit score and HIGH quoted interest rate for a DSCR loan refinance.

After offering a simple usage loan to bring his credit score back up… He dropped this bombshell on us about his LLC partners (don’t make the same mistake).

DSCR Loans and a Real Estate LLC

This client told us he owned the property. All the properties were his. Then we got to ordering the title…

And the property was under an LLC. No problem! DSCR loans are great with LLCs.

Then he mentioned that he has a partner. And the partner owns 40% of the LLC. And his partner’s credit score was even worse than his.

Depending on the lender, a partner has to own a certain percentage of the LLC before their credit score matters. For some, it’s a minimum of 5% ownership. For others, it’s 50%.

In this case, at 40%, we look at the lowest credit score in the LLC to determine the loan rate and LTV.

Be warned: if your financing is under an LLC, you can get quoted one set of terms, but once it comes down to it, your partners’ credit scores can make the actual terms worse. Don’t let this catch you off guard.

You should not only be careful with your own credit – but with the credit of everyone in the LLC.

How to Fix a Real Estate LLC’s Member’s Bad Credit

In this client’s situation, we’re going to try another solution, but it will take much more time.

We’re going to move this partner off the LLC while we do the usage loan. Then give it a month or two until the lender can see that it’s only the client’s name, with no partner.

There are hurdles this way. But there are always ways to get through it.

Keep this in mind when you put LLCs together for real estate investing. You might want one person with great credit and one with great experience, but however you piece it together, make sure you’re upfront with your lender. Being open about the LLC at the beginning can prevent roadblocks down the road.

Read the full article here.

Watch the video here:

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DSCR Loans and LLCs: Beware of This Major Roadblock

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Learn from this mistake: an important lesson about DSCR loans, LLCs, credit, and partners.

DSCR loans are a great option if you need a loan in an LLC’s name.

However, there’s a major risk to be aware of when you look for financing under your LLC’s name.

Let’s walk through what recently happened to a client whose credit score dipped… and a big secret was revealed.

Credit Usage Can Impact Your Loan Terms

This client was quoted by another company for a DSCR loan:

  • 9% interest rate
  • 3 origination points
  • On a cash-out, 70% refinance of a remodeled, rented property.

Doesn’t that seem high?

His main hurdle was that his credit score had dipped during the remodel of this project.

He started with a score of 720 and a credit limit of $35,000. To get the property rent-ready, he used $30,000 of this credit. This caused high credit usage – which dragged his credit score down to a 679.

This plummet in score cost him a couple of points in interest and origination, resulting in a much more costly refinance than he was prepared for.

How to Fix Bad Credit as a Real Estate Investor

To get his score back up, we helped him with a usage loan.

This means:

  • We gave him a private loan.
  • He used it to pay off his credit cards.
  • Paying off the credit cards lowered his usage.
  • Lower usage raised his credit score.

When usage is the reason for your low credit score, a small short-term private loan like this can be a solution.

In our client’s case, this higher credit score refreshed the refinance DSCR he was quoted to a 7.625% interest rate, with a half-point origination, on a 30-year fixed loan.

WAY better. Until he dropped a bomb on us…

DSCR Loans and LLCs

This client told us he owned the property. All the properties were his. Then we got to ordering the title…

And the property was under an LLC. No problem! DSCR loans are great with LLCs.

Then he mentioned that he has a partner. And the partner owns 40% of the LLC. And his partner’s credit score was even worse than his.

Depending on the lender, a partner has to own a certain percentage of the LLC before their credit score matters. For some, it’s a minimum of 5% ownership. For others, it’s 50%. 

In this case, at 40%, we look at the lowest credit score in the LLC to determine the loan rate and LTV.

 

Be warned: if your financing is under an LLC, you can get quoted one set of terms, but once it comes down to it, your partners’ credit scores can make the actual terms worse. Don’t let this catch you off guard.

Be careful not only with your own credit – but with the credit of everyone in the LLC.

How to Fix a DSCR Loan When Your LLCs Partner Has Bad Credit

In this client’s situation, we’re going to try another solution, but it will take much more time.

We’re going to move this partner off the LLC while we do the usage loan. Then give it a month or two until the lender can see that it’s only the client’s name, with no partner.

There are hurdles this way. But there are always ways to get through it.

Keep this in mind when you put LLCs together for real estate investing. You might want one person with great credit and one with great experience, but however you piece it together, make sure you’re upfront with your lender. Being open about the LLC at the beginning can prevent roadblocks down the road.

Help with DSCR Loans, LLCs, and Other Investor Loans

If you have any other questions on DSCRs, fix and flips, or any kind of loan in the investor world, we’re happy to help.

For more info on real estate investing, you can check out our YouTube channel. You can also reach out directly at Info@TheCashFlowCompany.com.

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How to Get a Small Loan for Bad Credit

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Have high credit usage? Get a small loan for your bad credit like this.

Credit is a powerful tool for real estate investors.

A credit score, even more so.

Sometimes the very projects that are making you money stifle your ability to get a loan to start your next project. Let’s briefly go over why this happens – and how a small loan for bad credit could help you.

About Credit Usage Loans

Not every real estate lender offers loans under $75,000, but we believe this size of loan is important. A popular way our clients use these small loans is as an “Improve Your Credit Score” loan – a usage loan.

Credit usage is a common sore spot for many real estate investors’ credit scores.

Maybe you use your personal credit card to fix up your properties. You pay all the charges off once you sell or refinance your flip.

But in the meantime, you’re using a high percentage of your personal credit limit. This usage negatively impacts your score. With a bad score, you lower your chances of getting a great loan for your next project.

Here’s where our loans come in:

  • You take out a private loan with us.
  • Use those funds to pay off your personal credit cards.
  • Your usage goes down dramatically, improving your score so you can get approved for other loans.

Once you get the balances off your personal credit cards, we recommend moving your fix and flip expenses to a business card.

Get a Small Loan for Your Bad Credit

Have questions about how these small loans work? Need a smaller loan? Reach out at Info@TheCashFlowCompany.com and we’d love to see how we could help.

Read the full article here.

Watch the video here:

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How to Fix Credit Usage Quickly

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High usage lowers your score. Here are 3 ways to fix credit usage quickly.

From our 20+ years of working with real estate investors, the number one reason we see them pay too much for funding is their credit scores are artificially lowered by their normal business needs.

How does this happen? And how do you fix it?

How Usage Impacts Your Credit Score

Many investors put their business expenses on a personal credit card. As long as it gets paid off eventually, no problem, right?

Unfortunately, when the ratio between your balance and your credit limit is high (aka, credit usage), your credit score takes a hit.

But you need credit cards to keep projects (and your business) growing.  The problem is: you either have to wait until you pay off the cards after selling the current project to start your next project, or… Pay over-inflated prices for money.

Let’s look at 3 ways to fix that.

3 Ways to Fix Credit Usage Quickly

  1. Move the cards off your personal name and onto business cards that don’t report on your credit. Some business cards do reflect on your personal credit, so make sure to ask about that before committing to a card. Here is one option you could look into.
  2. Call your current cards and ask them to raise your available limits. The problem isn’t that your balance is high. The real issue is that you’re using too high a percentage of your credit.
  3. Obtain a private loan that does not report on credit to pay off the cards. This raises your score so you can get better funding before paying off the card.

Getting Help to Fix Credit Usage

Interested in discussing a usage loan? Let us know here.

For more info on getting credit ready for leverage, you can watch these videos.

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