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Protecting Credit: Avoid Spending Money You Don’t Have

Published on Monday - February 10, 2014

One of your most valuable assets as an investor is your credit. Even if you don’t intend to finance any property or use credit in the foreseeable future, you never know when things can change. One day you may get an opportunity that requires financing. However, a poor credit score will prevent you from taking advantage of what could be a great deal. The biggest way to avoid this problem is by not spending money you don’t have. It may sound simplistic and obvious, but if you cannot pay cash or write a check for an item, you need to wait until you have the money to buy it.

There are many good ways to use short term credit. You can pay for supplies on a property that you anticipate closing in the next 60 days or you can use credit to help grow your business. This looks good in theory. If used properly, you will not have any issues, but problems will pop up occasionally. What if your property doesn’t close in 60 days? What if your marketing yields poor results and doesn’t pay for itself? Nobody ever wants to think about the worst case scenario, but it does happen. When it does, where does that leave you?

You now have to pay for items on credit at a rate that rests anywhere from 5-20% interest. You may be able to shop around and get a better rate, but the first month you are late you can expect that rate to soar. Now you are not only looking at an increased rate and payment, but your credit has taken a hit. The more months you are late and don’t get caught up, the more your credit is impacted. The size of the account does not make a difference, if you are late on any credit card you can expect your score to suffer.

Even if this was just a problem for a few months, your score will be lowered. Mortgage programs are based off of tiers where the credit score falls. If your score falls below the tier, you will not get approved for a loan or your rate will be higher. If you are looking for another credit card, or even hard money loan, your score will impact what you will be approved for and if you are qualified at all. So be careful the next time you want to put something on credit. If you don’t have the money to cover it, it can end up hurting you in the long run. You don’t want to miss out on an amazing deal because of an overdue payment.

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