The Role of Credit Scores in Real Estate Investment: How to Improve Yours
A credit score is used to determine how you deal with credit. Lenders use it to assess the likelihood of adherence to repayments—in other words, how much of a risk you are at potentially defaulting.
When it comes to real estate investment, your credit score will significantly impact traditional borrowing (mortgages, FHA loans, etc.). However, if you choose a non-traditional route—AKA, hard money lenders—then the quality of your credit score is likely to have little or even no bearing on whether you get approved.
Discover More About a Credit Score for Real Estate Investors
- Credit scores in numbers and how this affects traditional lending
- 5 ways of improving credit for home loans
Credit scores in numbers and how this affects traditional lending
A credit score is calculated through your financial status and history over the past few years. These are correlated by three major credit agencies and include information like:
- The level of credit you currently have.
- The types of credit (car loans, mortgages, credit cards, etc.)
- Current outstanding balances.
- Your payment history.
- The length of credit history.
- Recent applications for new credit accounts.
Credit scores are in the form of a number, with the ranges being:
- 300-579: poor
- 580-669: fair
- 670-739: good
- 740-799: very good
- 800-850: excellent
Traditional lenders offer better rates to those with a higher credit score. This is due to the increased perceived risk of those with a lower score. The better the score, the more likely you are to be approved for a loan.
5 ways of improving credit for home loans
Improving a credit score takes time—typically over months or years. However, as they’re recalculated monthly, taking positive steps will see a gradual improvement. This can be facilitated by:
- Not opening new credit or a financial account that runs a hard credit check.
- Adhering to monthly deadlines and paying, at the very least, the minimum amount.
- Overpaying the minimum monthly amount—preferably the entire balance.
- Reducing credit balances, ideally keeping borrowing to below 50% of what you have available.
- Reviewing your credit score regularly and disputing any discrepancies.
You could also consider becoming an authorized user on a trusted person’s credit card—especially useful for those with little credit history or a poor credit score.
What are the Best Loans for Investors?
- Understanding hard money loans for real estate investing
- Forget credit scores: Why hard money lenders are fueling a wave of savvy investing
Understanding hard money loans for real estate investing
Hard money loans for real estate are very different from traditional lending. While the latter uses a credit score to determine the risk and whether to lend, the latter secures the loan solely (or almost solely) on the property.
They can do this because they are private lenders, rather than being backed by the government or banks. While they do have to adhere to legislation, they are free to make lending decisions based on their own chosen criteria.
Forget credit scores: Why hard money lenders are fueling a wave of savvy investing
Credit scores tend to have minimal or zero impact on hard money borrowing. This makes them very appealing to real estate investors who might have significant loans on other properties. For those looking to fix & flip or BRRRR (buy, rehab, rent, refinance, repeat), the number of properties and current borrowing makes no difference to being approved for further lending.
The loan is secured against the property in question, rather than any other asset, income, or creditworthiness you may have.
This presents a potential world of real estate investing that, before such loans became legislated and more popular, simply wasn’t available for regular people. While you will have to put some money into the equation (typically upwards of 20%), using such a service is an increasingly popular way to make money from and/or build a suite of real estate.
Forget the Credit Score: Real Estate Investors Call BRRRR Today
As a responsible private lender, BRRRR offers some of the best loans for investors looking to start or build a real estate portfolio. We secure lending on the property, not your circumstances, meaning we open the door to lucrative wealth building that may not be possible through solely traditional lending.
Visit https://www.brrrr.com/ to find out more and call our expert advisors for a confidential discussion.
Buy, Rehab, Rent, Refinance, & Repeat. A nationwide direct lender to real estate investors. If you have a project that needs to be funded, you’ve come to the right place.