Originally Posted By John Dessauer On May 2, 2016
Good credit can assist you in almost any financial situation life has to offer, and this is especially true in property investing. Some real estate gurus claim a good credit rating is not essential to be an investor, nevertheless, it can be a very important tool for success for beginners. Looking good on paper can not only speed up a loan process, it can garner a much lower interest over the life of the loan, help get lower rates on property insurance, and allow you to borrow a much larger amount of money.
If your spending habits have been less than stellar and you are dealing with the consequences of a low credit score, you don’t have to abandon your ambition to become a successful property investor. It is possible to improve your financial good health and repair your low credit score.
So what can you do to right those past financial wrongs? In the beginning, you need to mentally and emotionally commit to the idea of repairing your finances. Make a solemn promise to stop any bad spending habits, such as impulse buying. Working out a budget and sticking to it is the first step to gaining the property buying power you desire.
The next logical step is to start paying down any debt balances you may owe. Credit cards and personal loans are two examples of the kind of unsecured debt that should be eliminated. Your goal should be to reduce your debt ratio to lower than 30%. The more you can lower your debt ratio, the higher your credit score will eventually rise.
When you have gotten your finances on the right track it’s time to consider options for property investing that can improve your credit rating. If you have acquired the knowledge needed to start your investing career and have done ample research on your first potential investment, you could ask a family member or friend for a starter loan for your first real estate venture. After your first successful property investment, financial institutions will be more interested in working with you in the future.
Another investment option that can improve your credit rating is finding a good real estate deal, get a loan at whatever rate is possible, and flip the property as fast as you can. If you can quickly flip the property you can still make a profit, even if you borrow money at a very high-interest rate. However, a great deal of research will be needed to make sure you can actually flip the property quickly and not get stuck with a high-interest rate long term.
Another option is to find an investment partner with a good credit score that will work with you. Working in tandem with a successful property investor will not only help you to repair your own credit rating but will provide a great learning opportunity. Entering into a partnership can be a great way to get started in property investing, but you must be sure the partner is trustworthy and uses legitimate business methods. Conduct a background check if you are considering a financial partnership with another person.
“Remember, wealth has nothing to do with money, success has everything to do with failure, and life is as simple as you make it!” – John Dessauer