No matter what method of financing you as a real estate investor pursue, your credit score is always paramount to both opportunity and success in the business. Your credit score goes hand-in-hand with your reputation: except this time, it’s all money. So much can hinge on just that number.
Real estate investors, who often deal with financing with banks, private lenders, and partnerships, need to do everything they can to keep their credit score well above average. You want a glowing record so that you never have to worry about not being approved on financing for your next investment property.
So real estate investors, here are a few tips to put in your tool kit:
1. Keep Your Good Debt on Record
Remember—15% of your credit score has to deal with your credit history. While you may feel like erasing finished, completed debts from your record might be good, it may actually hurt you in the long run. When you’ve payed off a debt, why wouldn’t that look good to lenders? A track record of paying off debts responsibly and in full can work to your advantage. Don’t fall into the impulse to erase debt just because it’s debt. There’s good debt you’ll want to keep in your history.
2. Avoid Undue Risk
Consistency is key. Absolutely avoid missing payments. It’s also a bad idea to suddenly start paying less on your statements and suddenly charging a lot more than you usually do on your card. There are also behaviors that can indicate risk while not directly impacting your credit score that you should steer clear of: cash advances and using your card at business that could indicate financial strain, such as pawn shops or attorney’s offices.
3. Guard Your Identity
Identity theft is far from a lost art. In fact, it seems more prevalent than ever! These thieves can easily rack up debt in your name once they’ve stolen your identity, so it’s always important to protect yourself. That means keeping your important documents secure, avoiding sharing too much personal information online, changing your passwords regularly (and using complex passwords), using two-step authentication when you can, and avoiding clicking on scams and spam. Protect your phone and computer with antivirus and anti-malware software.
It might be inconvenient at times, but protecting your identity is a first line of defense in protecting your credit.
4. Pay Down Your Balances
Consolidate balances where you can if you have multiple cards from the same carrier. Make consistent efforts to pay off your balances with your statement: ideally, your balance is 30% and under of your total available credit. Less is definitely better! Obviously, you’ll want to avoid defaulting or just skirting by by paying only the minimum dues.
5. Don’t Apply for More Than You Need
Having ten credit cards at once that you use isn’t a great plan, let’s be honest. While you can look at them as say, hey! More credit! If they approved me, my score must be good!...that’s not really accurate. More balances means more to keep up with, and it can lead you into dangerous territory. Don’t apply just because you get approved. Only keep what you absolutely need.
6. Have a Plan for Theft
This is more about traditional theft. What if someone steals your wallet or purse? How quickly can you track down all of your card numbers and contacts so you can cancel those accounts? The best method will be to keep a record of all of your accounts numbers, expiration dates, and who to contact. Keep this list somewhere safe, such as a locked filing cabinet.
7. Track all Fees and Statements
Staying in the know is key. You don’t want sudden expenses and fees to catch you by surprise. When you carefully examine your statements, know what fees there are, and generally pay attention, you’ll be more likely to catch inconsistencies and mistakes, as well as be better equipped to anticipate your upcoming bills. Keep track. Do your due diligence.
Bonus: Improving Your Credit Score
Maybe you don’t want to just protect and maintain. Maybe you had a rough patch and want to boost your score. Here are a few ways to bring your credit score up with small, consistent efforts:
- Pay on time
- Underuse your card
- Open a secure credit card through your bank
- Eliminate small balances
- Avoid charging for large purchases
- Get your credit limit raised...and still underuse it
- Be patient. Black marks will fade with time.
What strategies do you employ to improve and protect your credit score? Share your tips in the comments.