Investing in real estate has become a proven way to generate long-term capital appreciation and generate wealth. Today, there are reportedly more than 7 million American real estate investors. Investing in real estate takes money and one of the first things that lenders look at is your credit score, so if the question is “Will a credit score affect real estate investments?” The answer is a resounding “Yes!”
The Components of a Credit Score
The components of a credit score are first, your payment history. Did you miss any payments? Were payments made late? Second, what is the amount of your debt relative to your credit limit? Third, how many credit accounts do you have open? It is good to have multiple accounts if your history shows that you have been responsible for making appropriate payments on time. Fourth, what types of credit do you have including mortgages, car loans, and credit cards? Having a combination of credit types is good if appropriate payments are made on time. Fifth, how much “new credit” do you have? Lots of “new credit” may indicate that you have too much debt or that you are having trouble paying your bills. Additionally, adding new credit accounts will reduce the average age of your credit, and that can have a negative impact on your credit score.
How Does a Credit Score Affect Real Estate Investments
Does a credit score affect real estate investments? Yes, in these five ways, your credit score will:
- Determine the selection and quality funding resources that you can approach.
- Affect your negotiating power and your ability to qualify for loans, thus facilitating or blocking your ability to secure investment funds.
- Help to determine the interest rates that you pay for investment loans. That affects your monthly payments, your cash flow, and your total costs over the life of the loan(s).
- Impact your access to insurance products including the types and costs of coverage.
- Influence potential suppliers and utility companies who use credit scores to determine how much credit they will extend to their customers.
How to Improve Your Credit Score
Will an improved credit score affect real estate investments? Again, yes. Here is how to improve your credit score. First, pay all your bills early or on time. Second, prioritize the bills that you pay off. Smaller bills with high interest like credit card bills should be paid first. Third, manage your credit utilization ratio to show that you have payment flexibility. Ideally, stay below 30 percent of your credit limit. Fourth, study your credit report to make sure that it is accurate and current. Correct any errors and eliminate any old history.
Can Someone with a Bad Credit Score Invest in Real Estate
Working with an expert lender will help you get the funding that you need, even if you have bad credit. Alternative ways of securing funding include hard money loans, private money, subprime loans, and FHA loans.
Seek Expert Financing Assistance
Contact CapitalAx Commercial Lending, based in Lubbock, TX to get the financing you need to establish and grow your real estate investing business. We offer a wide range of commercial finance programs to help you achieve your goals.