Post by Brian Gibbons on Mar 19, 2005 2:05:13 GMT -5
Know Your Credit
This is a big problem that most beginners in real estate have when trying to make deals work. They simply do not know what their credit rating is, and therefore do not understand what type of loan programs and financing they can use.
In real estate, your number one asset is your credit. Without it, it is extremely hard to make deals go through—although it is possible! When we first started out (my partners and I) we had terrible credit and still made a fortune in real estate; but that bad credit really does make things harder than they should be. But realistically, more people than ever before seem to have not-so-good to bad credit.
Bad credit and bankruptcy are two very common issues a lot of people have questions about when they begin this business. Let me just say right now—yes, both bad credit and bankruptcy will be red-flag factors to some lenders, and they will put you in a very high interest rate category for any loans that you may qualify for. That’s part of the deal you get stuck with if your credit is not so good. But, you still can get help; it will just take a bit more effort and determination on your part.
I know you’re probably sick of my motivational quotes, but I have to throw this one at you regarding credit:
“If you only knock long enough and loud enough at the gate, you are sure to wake up somebody.” Henry Wadsworth Longfellow
OK—what that means is that you have to be persistent with this! Don’t give up and think just because one, five, or even twelve lenders said no about giving you a loan to work your deals that they all will—I know that’s easier said than done, but the fact is that sometimes it just takes a bit longer to get the financial assistance you need when your credit is poor.
Now let's get back to discussing credit. When I say “know your credit” there are specific things you must know about your credit report before you attempt any real estate deals.
First you'll want to get a copy of your credit report. One way is to go to any mortgage company in your area and ask to be pre-qualified for a loan; they'll be more than happy to run your credit for you. Just make sure you tell them that you want a copy for yourself. Or, you can go online nowadays and get that info pulled up right away; it’s up to you.
One good site is www.consumerinfo.com. You will need to enter in a ton of your personal information, but it’s all 100% secured and it’s also very quick, so you may want to consider that avenue as well. There are also sites that will pull up not only the score, but your entire credit history as well. You may want to get that extra info just to keep on hand if you have questions as to why your credit score doesn’t sound right (for example, let’s say you have no outstanding debts but you get your score pulled and it’s in the poor category; you’ll want to see how the credit reporting agencies got that in case you need to dispute anything.)
Let me just say right now, that sometimes mistakes ARE made on behalf of either the agency or the company reporting so it really can pay for you to check closely on that.
The main thing you want to look for on your current report is if there is any adverse information. What I mean by "adverse information" is late payments, collections, judgments and so forth. If you have this type of adverse information on your credit report and have the money to pay off these bad debts, do it right away. The better your credit becomes, the more deals you can do! That's a sad fact, but I learned the hard way in the beginning the better your credit the more money you will make in real estate with less effort! If you don't have good credit right now, don't worry, you'll still be able to make a ton of money but it will require a bit more time and effort (and patience on your part!)
If you simply do not have the means to pay off those adverse debts, you may want to call up the collection agencies that you owe the money to (they are probably hounding you day and night anyway!) and ask if you can be set up on some kind of small repayment plan. Even if you can only put $10 a month toward a debt, that shows them that you are willing to try and also when the credit bureaus get their updated info each month, it may knock your score up, which puts you into a better category, which means it will be much easier to get a loan for your deals. It’s really that simple.
Your next step is knowing your credit score number. Your credit score is basically a risk-scoring system that banks and lending institutions use to see how good or bad of a credit risk you are. It basically eliminates the common sense approach to approving loans, but the reason it’s used is because it’s very cost effective for the banks to utilize. You need to specify that you want your credit score included with your information when obtaining a copy of your credit report, because sometimes it’s not standard.
What you're going to be looking for is your Fair Isaacs, or FICO score. This is what most real estate lenders look for when pre-qualifying their prospects. Although I personally do not agree with this system, you still have to know it. Also keep this in mind for pre-qualifying people to purchase your real estate properties. Continue to keep this in your mind—know your financing.
The following table will help you understand where your credit ranks:
Credit Score/ Rating:
700 or over Excellent
699-660 Very Good
659-620 Good
619-590 Fair
589-480 Bad
Obviously if your credit score is 620 to about 700 (or more, of course) you can negotiate on better terms and better rates for your loans. But if you're in the lower category of credit scoring, you'll have to roll with the punches and take a higher interest rate until your credit gets better. No big deal; when I first started out, the lowest rate I had on a property was 11.5% and I still made a killing.
A lot of people make the mistake in real estate of trying to get deals without first seeing where their credit rates.
Many people get down to the closing table and realize they have to pay the seller or the mortgage company 13% interest because of their bad credit, and then no longer want to continue the deal.
The reason I'm telling you this upfront is because if your credit ranks in the lower category, do not expect a low interest rate or much negotiation on the seller's part. If the deal makes sense with a 13% interest rate, do it! So what, you lose a grand or two to make $20,000 or more! Remember the key—if it makes sense, do it. Once you've been doing this for a while, your credit will improve. You'll learn more on that in later chapters.
I can't begin tell you what a powerful tool it is to learn how to read your credit and read other people's credit before purchasing your first real estate investment property! You should finish this chapter learning that you need to know what your credit score is and how to find it on a credit report.
Because once you start unloading your future properties, you will have to be able to find this information on other buyers that may purchase your property.
You can also right now get information on how to obtain a 100% FREE copy of your credit report from Equifax!
There are absolutely no strings attached to this; click the URL below to get started ASAP.
Here is the link; it’s a bit long so I’ll enlarge it for those of you who are retyping it into your browser:
service.bfast.com/bfast/click?bfmid=13376670&sideid=39474766&bfpage=banners_ccms
(Just a side note; there is an underscore “_” between the last two words at the end of that link.)
You really won’t be able to move forward until you get this score.
Your credit score is: _________.
Category it falls into: _________.
Why is this so important to have to know?? Because it makes a big difference when it comes time to finance your deals. Of course, this would be no big deal if you had hundreds of thousands in the bank to come up with at the drop of a hat; however, most people don’t. This step will help you see where your best chance of getting a loan will come from. You will obviously have your pick of choices if your credit is better, but then at least we have something to work with even if it’s not.
Then, you can either decide to try to start repairing it (even if you have to take baby steps to do that), and then when you go to a hard money lender to get a loan (more on that in the next chapter!) you will score some more points by letting them know you are on a repayment plan for the outstanding debts on your record.
Bottom line—you need to know this information, however unpleasant it may be. But also, please don’t throw in the towel if you get news of your score being much worse than you thought. It can always change, and when you start closing deals and paying those lenders back, it will start to increase little by little.
Stay patient and persistent! This is the point where I usually have my students emailing me, worried sick that their credit isn’t good enough to get a loan. Maybe it’s not through a conventional lender; but as you will soon read, that’s not the only way to get a loan!
This is a big problem that most beginners in real estate have when trying to make deals work. They simply do not know what their credit rating is, and therefore do not understand what type of loan programs and financing they can use.
In real estate, your number one asset is your credit. Without it, it is extremely hard to make deals go through—although it is possible! When we first started out (my partners and I) we had terrible credit and still made a fortune in real estate; but that bad credit really does make things harder than they should be. But realistically, more people than ever before seem to have not-so-good to bad credit.
Bad credit and bankruptcy are two very common issues a lot of people have questions about when they begin this business. Let me just say right now—yes, both bad credit and bankruptcy will be red-flag factors to some lenders, and they will put you in a very high interest rate category for any loans that you may qualify for. That’s part of the deal you get stuck with if your credit is not so good. But, you still can get help; it will just take a bit more effort and determination on your part.
I know you’re probably sick of my motivational quotes, but I have to throw this one at you regarding credit:
“If you only knock long enough and loud enough at the gate, you are sure to wake up somebody.” Henry Wadsworth Longfellow
OK—what that means is that you have to be persistent with this! Don’t give up and think just because one, five, or even twelve lenders said no about giving you a loan to work your deals that they all will—I know that’s easier said than done, but the fact is that sometimes it just takes a bit longer to get the financial assistance you need when your credit is poor.
Now let's get back to discussing credit. When I say “know your credit” there are specific things you must know about your credit report before you attempt any real estate deals.
First you'll want to get a copy of your credit report. One way is to go to any mortgage company in your area and ask to be pre-qualified for a loan; they'll be more than happy to run your credit for you. Just make sure you tell them that you want a copy for yourself. Or, you can go online nowadays and get that info pulled up right away; it’s up to you.
One good site is www.consumerinfo.com. You will need to enter in a ton of your personal information, but it’s all 100% secured and it’s also very quick, so you may want to consider that avenue as well. There are also sites that will pull up not only the score, but your entire credit history as well. You may want to get that extra info just to keep on hand if you have questions as to why your credit score doesn’t sound right (for example, let’s say you have no outstanding debts but you get your score pulled and it’s in the poor category; you’ll want to see how the credit reporting agencies got that in case you need to dispute anything.)
Let me just say right now, that sometimes mistakes ARE made on behalf of either the agency or the company reporting so it really can pay for you to check closely on that.
The main thing you want to look for on your current report is if there is any adverse information. What I mean by "adverse information" is late payments, collections, judgments and so forth. If you have this type of adverse information on your credit report and have the money to pay off these bad debts, do it right away. The better your credit becomes, the more deals you can do! That's a sad fact, but I learned the hard way in the beginning the better your credit the more money you will make in real estate with less effort! If you don't have good credit right now, don't worry, you'll still be able to make a ton of money but it will require a bit more time and effort (and patience on your part!)
If you simply do not have the means to pay off those adverse debts, you may want to call up the collection agencies that you owe the money to (they are probably hounding you day and night anyway!) and ask if you can be set up on some kind of small repayment plan. Even if you can only put $10 a month toward a debt, that shows them that you are willing to try and also when the credit bureaus get their updated info each month, it may knock your score up, which puts you into a better category, which means it will be much easier to get a loan for your deals. It’s really that simple.
Your next step is knowing your credit score number. Your credit score is basically a risk-scoring system that banks and lending institutions use to see how good or bad of a credit risk you are. It basically eliminates the common sense approach to approving loans, but the reason it’s used is because it’s very cost effective for the banks to utilize. You need to specify that you want your credit score included with your information when obtaining a copy of your credit report, because sometimes it’s not standard.
What you're going to be looking for is your Fair Isaacs, or FICO score. This is what most real estate lenders look for when pre-qualifying their prospects. Although I personally do not agree with this system, you still have to know it. Also keep this in mind for pre-qualifying people to purchase your real estate properties. Continue to keep this in your mind—know your financing.
The following table will help you understand where your credit ranks:
Credit Score/ Rating:
700 or over Excellent
699-660 Very Good
659-620 Good
619-590 Fair
589-480 Bad
Obviously if your credit score is 620 to about 700 (or more, of course) you can negotiate on better terms and better rates for your loans. But if you're in the lower category of credit scoring, you'll have to roll with the punches and take a higher interest rate until your credit gets better. No big deal; when I first started out, the lowest rate I had on a property was 11.5% and I still made a killing.
A lot of people make the mistake in real estate of trying to get deals without first seeing where their credit rates.
Many people get down to the closing table and realize they have to pay the seller or the mortgage company 13% interest because of their bad credit, and then no longer want to continue the deal.
The reason I'm telling you this upfront is because if your credit ranks in the lower category, do not expect a low interest rate or much negotiation on the seller's part. If the deal makes sense with a 13% interest rate, do it! So what, you lose a grand or two to make $20,000 or more! Remember the key—if it makes sense, do it. Once you've been doing this for a while, your credit will improve. You'll learn more on that in later chapters.
I can't begin tell you what a powerful tool it is to learn how to read your credit and read other people's credit before purchasing your first real estate investment property! You should finish this chapter learning that you need to know what your credit score is and how to find it on a credit report.
Because once you start unloading your future properties, you will have to be able to find this information on other buyers that may purchase your property.
You can also right now get information on how to obtain a 100% FREE copy of your credit report from Equifax!
There are absolutely no strings attached to this; click the URL below to get started ASAP.
Here is the link; it’s a bit long so I’ll enlarge it for those of you who are retyping it into your browser:
service.bfast.com/bfast/click?bfmid=13376670&sideid=39474766&bfpage=banners_ccms
(Just a side note; there is an underscore “_” between the last two words at the end of that link.)
You really won’t be able to move forward until you get this score.
Your credit score is: _________.
Category it falls into: _________.
Why is this so important to have to know?? Because it makes a big difference when it comes time to finance your deals. Of course, this would be no big deal if you had hundreds of thousands in the bank to come up with at the drop of a hat; however, most people don’t. This step will help you see where your best chance of getting a loan will come from. You will obviously have your pick of choices if your credit is better, but then at least we have something to work with even if it’s not.
Then, you can either decide to try to start repairing it (even if you have to take baby steps to do that), and then when you go to a hard money lender to get a loan (more on that in the next chapter!) you will score some more points by letting them know you are on a repayment plan for the outstanding debts on your record.
Bottom line—you need to know this information, however unpleasant it may be. But also, please don’t throw in the towel if you get news of your score being much worse than you thought. It can always change, and when you start closing deals and paying those lenders back, it will start to increase little by little.
Stay patient and persistent! This is the point where I usually have my students emailing me, worried sick that their credit isn’t good enough to get a loan. Maybe it’s not through a conventional lender; but as you will soon read, that’s not the only way to get a loan!