Your credit score is one of the most important assets you have as a real estate investor. With a strong credit score, you will have access to more loan programs and be able to secure different lines of credit. On the flip side, poor scores will close doors for you and make investing much more difficult. Fortunately, there are many ways to improve damaged credit. There are more resources for credit repair today than ever before. One bad account does not have to be a permanent stain on your record. Before you can formulate a plan of attack, you need to know what you are up against. Here are a few ways to recognize, maintain and improve your credit score:
1. Access your credit: When is the last time you looked at your credit report? If you are like most people, the answer is longer than you would like to admit, if ever. Before you can do anything else, you need to know where you stand. There are many more credit reporting sties than ever before. You can either go directly to these sites for a free copy or visit Equifax, Transunion or Experian. These are the three main credit reporting sites, and they will be able to provide all the information you need. Once you have a copy, take the time to examine it. If you have a popular last name it is not uncommon for erroneous items to be found on the report. You may also be surprised to see that accounts from years ago are still open and active. You may even find a judgement or perhaps a lien that you never knew about. These are the accounts that may be weighing your scores down without even knowing it.
2. Remove negative items: Once you discover that there are incorrect or inaccurate items, the next step is to remove them. There is nothing you can do to remove items that are legitimately late, but you can fight items that aren’t yours. The problem is typically locating the lienholders or proving that items aren’t yours. This is a painstaking process that can be very frustrating and time consuming. However, there are many credit repair companies that can get items removed for you. They typically charge a flat fee per account, or have a revolving monthly fee. Getting these items off your credit can have an immediate impact, often within 30 days. If you decide to do this yourself, be prepared to spend hours on the phone talking to different people. You will also need to send anything you can find to prove that you are not the person on the report. However you do it, you need to get these negative items off your credit report as soon as possible. One or two negative accounts can bring your scores down as much as 50 points, or more.
3. Make a plan: There are a few factors that go into calculating a credit score. The most important factor is the timeliness of your payments. While this is critical, it is far from the only determination. One of the hidden reasons that your score may not be as high as you think is due to a lack of available balance. You are considered to be a higher risk when your account is maxed out. Even if you pay all accounts on time, but have high balances, your scores will suffer. Knowing this, you should make a plan for how you are going to lower your balances. You should start by working on the ones with the highest interest rates, not necessarily the highest balances. Racking these balances up didn’t happen overnight, so fixing the problem won’t happen quickly either. Nothing positive will happen unless you make a plan and commit to stick to it. A few dollars over the minimum payment will get the process going in the right direction.
4. Schedule payments: Timely payments are still the most important factor in your credit score. One bad account can do a number on your score. The best way to avoid late payments is to set up a detailed schedule for when and how payments will be made. Many creditors offer automatic payment so you don’t have to worry about physically sending money in every month. Almost all creditors offer the ability to pay online. The process of making a handful of payments shouldn’t take you more than a few minutes. Scheduling payments also means being able to balance your bottom line. It may take a few months to get adjusted, but scheduling your payments at a set date will help get your bills paid on time. Timely payments lead to higher scores
5. Be smart with new accounts: There are times where you may need to open a new credit account unexpectedly. When this happens, you need to be smart about how you do it. Look for cards with low rates, zero balance transfer options and other promotions. In a perfect world, it is best to use reserves instead of establishing new credit, but things happen outside your control. Climbing out of debt and getting a hold of your credit is difficult if there are multiple accounts to deal with. Even if you can gain access to credit, it doesn’t mean you have to. Most people are not disciplined enough to handle large credit limits, and eventually tap into them. If you do open up a new account, make a plan for how you will pay it off. Manage your credit instead of letting it managing you.