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Protecting Your Most Valuable Asset: Your Credit Score

Your credit score is one of the most valuable assets you have as an investor. Even if you don’t have a current need to utilize lender financing, you know never what is around the corner. Deals and situations seem to come up when you least expect them. Without a serviceable credit score, you will be left to watch deals pass you by. Strong credit scores are also critical for credit cards. If something happens in the middle of a rehab project or rental property, credit can come in helpful. Low scores are detrimental, but they are not the end of the world. Fortunately, there are things you can do to quickly increase your score. Here are some of the best ways to improve your credit score:

1. Pay down debt: A high balance can hurt your score. It is not enough to pay everything on time. Credit agencies like to see that you have at least 30 percent or more in available balance. If you are looking for a short term boost to your score and you have access to savings, you should consider paying down your debt. Once the balances are reported to the credit agencies, your scores rise almost immediately. Even if you make slightly more than the minimum payment, it will have a huge positive impact. The lower your balances are across the board, the higher your scores will climb.

2. Open a secure credit card: If you are looking to establish credit, a secure credit card can do the trick. A secured card is a major credit card that is issued through a bank. The difference is that you deposit the amount that the credit line is good for. Instead of a creditor issuing you “credit,” this money is already in the account and is reported just like a major credit card. You still need to make monthly payments and do everything else like a normal credit card, but it offers you a way to establish credit. In some cases all that is needed to boost a score is simply just new credit.

3. Get current/stay current: Your credit score is really just a snap shot of your current financial picture. The credit agencies look at your whole credit history, but more weight is given to your current situation. Being late on an account can cause your scores to drop by as much as 50 points. The more months you are late, the lower your score gets. Fortunately, this also can work in reverse. If you get current on an account that you were late on, it will cause your scores to shoot up. The first thing you should do if you are late is to get current on any delinquent accounts. This is obviously easier said than done at times, but it is essential for a strong credit score. This could mean sacrificing a few extra dinners or a few nights out a month, but it will have a huge impact on your credit score.

4. Stay updated: When you are going through a rough financial patch, there is a tendency to block things out. Collections do not simply disappear over time, however. They often get transferred from one agency to another. It is important to always know what is going on with your credit report. It is easier than ever to stay on top of your credit. In the past, if you wanted a copy you needed to get it from a local lender or mortgage broker. Today, you can get email alerts sent to your phone or right to your inbox. There is truly no excuse to have an old account pull your credit down.

5. Keep good debt open: If you have paid an account down successfully, there is a natural instinct to immediately close the account. This makes sense in theory, but if you have no desire to use the card you should keep it open. For starters, an account that is paid down offers substantial available balance. Available balance is one of the items that will boost credit scores. This also demonstrates that you can manage your credit and the payment history will act to increase your score as well. There is a big difference between paying a card off and closing it all together. Paying it off should be the goal if you are saddled with debt. Once you close the account, it is no longer active on your credit report. Keeping an account open that you have zero balance on is considered good debt, and will help your credit.

Having a low credit score is not the end of the world. Anyone can go through a rough patch that brings their scores down. If this happens, instead of trying to tackle every account at once take them on one at a time. You probably didn’t get into debt overnight and you won’t get out of it that quickly either. Regardless of what has happened in the past, it is important to maintain a healthy credit profile. There are plenty of things you can do, but if you start with these five steps you will be well on your way to recovery in no time.

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