The Importance of Your Credit Score for Real Estate Investing (and Trusted Ways to Boost Your Credit Score)
One of the most significant decisions that any person can make in his life is to invest in real estate. This is the one kind of investment that tends to become more and more profitable as time passes. Real estate investing is a great decision but you will need a lot of finance to facilitate your investment decision as well. It can be rather unfortunate if you lack the financial backup and support.
Your credit score is a key value that determines your worth in the real estate world. It’s important to remember that a low credit score will be unfavorable for real estate investors. A strong credit score, on the other hand, can be a determining factor for success in real estate investing.
Understanding ‘Credit Score’
It is pivotal to understand what ‘credit score’ means before we can understand its importance in the real estate world. An individual’s credit score is a three-digit value that represents his or her likelihood of paying debts on time. Credit scores help determine the interest rate on loans and debit and credit cards.
How Are Credit Scores Calculated?
People often wonder how credit scores are calculated and who is responsible for calculating them. The scoring models of FICO and VantageScore are used to calculate individuals’ credit scores. Institutes of Equifax and TransUnion are involved in deciding the credit score values for each individual.
Factors That Determine Credit Score
There are several factors that collectively contribute to determining the credit score value for a person. These factors are highly subjective to each individual and do not include any personal information like name, race, caste, ethnicity, nationality, educational background and nationality. All in all, only three factors matter for determining the credit score and credibility of a person:
- Your number of open bank accounts in good standing
- Whether you make the debt payments within deadlines or not
- Your current pending debts and your existing credit limit
Importance of Credit Score in Real Estate World
When you want to invest in real estate, buy yourself a flat, or just rent a new house, the agent will assess your credit score report to determine your financial eligibility.
The credit score report has detailed information and breakdown of your credit score. The standard acceptable credit score ranges from 300 to 850 in value. A lower score on this scale will limit your chances of investment in the real estate world whilst a higher score will secure a financial backup to aid your investments.
The importance of a high credit score in the real estate world is very simple to understand. A high credit score, in summary, means that you pay your debts on time and don’t have a bad track record of clearing off pending payments. Hence, the seller or landlord will feel more secure in renting a house to you because you have the credibility to earn their trust. In simpler terms, your credit score defines your ability to survive in real estate world. As an investor, we need to know different ways to boost your credit score.
Trusted Ways to Improve Your Credit Score
So far, the standing position of a high credit score and its role in aiding real estate investors (especially with high-end real estate investments) has become pretty clear. So, it’s understandable that people would want to know of ways through which they can improve their credit score. We know of some trustworthy ways to boost your credit score.
Make Your Debt Payments on Time
If you have a low score already, there is no use crying about it: that won’t change anything. You have to get into action to change the existing credit score on your report and the first trusted way to do so is by clearing off your debts right on time starting with the very next approaching payment.
It’s important that you religiously pay your debts on time. If you’re already falling behind, then you should start paying more money than you owe. This will help you improve your withstanding position effectively.
Don’t Delay Clearing Off Monthly Bills
If you don’t know this already, clearing off your monthly bills on time has a huge impact on your overall credit score. People who delay paying their monthly utility bills tend to have lower scores in comparison to people who pay their bills well before the deadline. Paying monthly bills is a very crucial factor in determining someone’s final credit score. You can definitely notice the difference in your credit score within weeks of starting to pay off your bills before the due date.
Don’t Close Down Existing Multiple Bank Accounts
One of the biggest mistakes you can make when trying to improve your credit score is to shut any of your existing multiple bank accounts in hope of increasing your credit limit. However, it has the opposite impact.
The right way to do it is to pay off all accounts, credit cards, and debit cards that aren’t in present use and avoid using them for a while. But you will still be on record as having the account, and so your final credit limit won’t be negatively affected. All in all, this will gradually help in improving your credit limit, but it will take time.
Open a New Account, If You Must
Instead of closing accounts, opening new ones seems to be a much better idea if you want to make sure your credit score keeps on soaring higher.
How does this work? Opening a new bank account will mean you are allotted a new credit/debit card. This will make more space for you to spend your money, likely with a lower credit limit on your new account, but with access to more credit overall (alongside the credit limits of your previous accounts).
Another way of opening a new bank account will help you is when you make sure that the new account you open is of another type. For instance, if you already have personal checking and business accounts, it’s wiser to opt for a savings account this time. Hence, the limit bracket (as well as the type of credit limit you get) will be different. This actually counts, as one of the factors that a bureau like FICO will take into consideration to evaluate your credit score.
Request Increases to Your Credit Limits on Each of Your Accounts
Another effective card you can play to improve your credit score is to make a manual effort to increase the credit limits on each of your cards. The best and easiest way to do this is by meeting with your financers and card providers personally and requesting a credit limit increase.
Needless to say, that your financers will know you’re looking for a credit limit as soon as you ask for one, but you should let your finance providers know that you are not looking for a credit limit increase to buy a new sports car. Make sure they know you’re actually striving to improve your overall credit score. As mentioned above, a quintessential factor that defines a credit score is the ratio between the amount of pending debt and the existing credit limit allowance.
By focusing on these five areas, you now know some of the best ways to boost your credit score. Learn the ins and outs of what is credit: https://fibyrei.com/learn-the-ins-and-outs-of-what-is-credit/
In 2018 FI by REI was created with the purpose of helping individuals that want a better life. We share articles on personal finance, house hacking & real estate investing, and more.