Because good credit score is the most important thing to have if you decide to get into real estate investing, you should know how to improve it. With a good credit score you will get the best possible interest rates, very fast approvals, and great terms. Even if you are not interested in real estate investing, good credit is always an important thing to have.
Some categories carry more weight than the others:
| Payment History | 35% |
| Amount of Balances | 30% |
| Age of Credit | 15% |
| Recent Credit Inquires | 10% |
| Mix of Credit | 10% |
Now you should understand why never being late with payments does not guarantee a great credit score.
OK, so how can you improve your credit score?
1. Too many or too little credit cards can hurt your credit score. Perfect number is between 4-6. If you have, say 10 credit cards, this can hurt your credit score by as much as 100 points. So close those extra accounts and keep your credit card number between 4 and 6. However, open accounts with balances hurt your score more than just open accounts.
2. If you have numerous accounts with balances that are approaching limit, it will hurt your score. Do not forget to lower them.
3. Late payments from two years ago do not affect your score as much as late payments from two months ago.
4. Multiple late payments on multiple accounts, collections,
unpaid judgments, and tax liens devastate your score.
5. Go straight to credit scoring purgatory if you’re within two years of a past bankruptcy discharge or a foreclosure sale. Chapter 13 bankruptcy plans and credit counseling debt management plans also count heavily and negatively.
6. Supposedly, FICO doesn't distinguish between late mortgage
payments and late payments on your Visa or student
loan. (Mortgage lenders, though, most certainly do care. Always pay your mortgage or rent first.)
7. Whenever your credit file is checked by someone, it counts against your score. However, multiple checks within,
for example, two weeks may not hurt as much as if it appears that you're merely shopping different lenders for one loan. Your
personal inquiries don't affect your score.
After you have done everything possible to improve your credit score, be aware that your credit score will not improve over night. Depending on the reason that is lowering your credit score it will take months to years for the credit score to improve by a bigger margin. For example, if you have a lot of credit cards open, after closing some accounts, it can take up to six months for it to be reflected on your credit score, and so on.
However, as well as the things listed above, errors can also hurt your credit score. Your mortgage loan application will require three credit scores, so when checking your credit score make sure you look for errors. But do not wait until the last day, look for those errors now! For example, look for late payments, disputed claims, balances, etc. Just make sure that all things reported on your credit file are correct.
Good credit score will give you great borrowing power, so follow these steps and improve it. Oh, one last thing. If you have an ex spouse, do NOT forget to get his/her name off all your accounts!