Do You Need Your Credit Score To Invest in Real Estate?
September 22nd, 2021 | By Yinka Olumorin
Many people aspire to buy a couple of investment properties that can cash flow, whether to supplement their current income or for their retirement.
Since there are a couple of ways to avoid using the bank to achieve this goal, we then wonder if there is any benefit to having a good credit score; particularly if you are thinking of buying real estate using a different route.
What is a Credit Score?
Simply put, a credit score is a number that tells a lender whether or not to lend to you. This number, summarizes your relationship with other lenders and how you have managed previous payment obligations.
So we ask:
Do you need your credit score to invest in real estate?
Let's hit the nail on the head here; your credit score can go a long way in helping you become successful in real estate investing.
A high credit score helps you to leverage on many different kinds of funding available for real estate deals. A good amount of money lenders will qualify you based on your credit score.
Lenders can trust you more and fund you more readily if you have a great credit score.
In fact, not having some form of financing lined up can cost you a profitable real estate deal if you don’t have the money!
What if you have poor credit? Is that the end of the world?
Certainly not!
You can still do real estate deals with poor credit.
Three (3) Things You Should Do If You Have Poor Credit
1. Explore Different Creative Strategies
Explore different creative strategies like seller financing, subject to, lease options and more. We explained some of these strategies in the previous blog.
2. Work With Lenders Who Will Accept Your Credit
Work with lenders who will accept your credit. Some lenders can go as low as funding your deal with a 580 score. However, don't expect to get the best terms with a low credit score. You will need to go through a couple of lenders, so get ready to dedicate more time to searching and finding a suitable lender.
3. Create A Plan To Gradually Improve Your Credit Score
Create a plan to gradually improve your credit score. Contrary to what many think, poor credit does not only happen because of debts like credit card, medical or student loan debts. You can have all these debts and still have a great credit score. These are important questions to ask yourself:
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Is the amount of debt you owe on each credit card less than 30%? If yes, that is a good thing!
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Do you have any derogatory comments? Best to stay away from negative comments on your credit profile by staying on top of things with any debts you owe.
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Do you have any payments in collections? Understand how these collections affect your credit score. Work with the collector and come to an agreement.
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How long is your credit history? The longer the better.
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Have you made any payment arrangements you can be consistent with on a monthly basis? Early and consistent payment is one of the top things a lender looks at. To have a great credit score, make sure to pay your bills before or on due date each month.
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How many hard inquiries do you have? When lenders or institutions check your credit score to see if you are eligible for a loan or credit card, it usually appears as a hard inquiry. You want to stay with as few as possible.
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What is your total credit limit? This refers to how much maximum amount of money you are allowed to spend on each credit card or line. The higher your credit limit, the better because you are less likely to violate the 30% rule with a higher limit.
As you pay attention to these factors, your credit score will gradually improve and you can take advantage of all the different kinds of low interest funding available, including lines of credit.
A high credit score helps you to leverage all the funding available for real estate deals. There are many lenders who will qualify you based on your credit score. Lenders can trust you more and fund you more readily if you have a great credit score.
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