There are many real estate gurus who tell us we don’t need good credit to make millions of dollars in the real estate market. While that is certainly true, and I have shown many investors how that can be done, you can make much more with good credit.
Poor credit is a weight around your neck that can kill many good deals. It limits the alternatives and options you have when the money market dries up. Besides, it is a reflection of your character. A person who isn’t faithful paying their monthly bills is a person whose word is not very believable.
The person with “challenged” credit, as we generously sometimes say, has a flashing neon sign on his back that declares: “I know I promised to pay, and I had good intentions, but I decided to buy a new car and take my wife to dinner instead.”
Here’s what I suggest:
1. Run a credit report and make a list of your debts. This will identify who you have to pay and when you should pay.
2. Don’t roll your debt into a credit card and then another. While this may seem like the answer to your problem, you are only creating a larger monster to deal with later.
3. Prioritize your credit list. My wife and I, when we were facing some very serious financial problems, had to work really hard to get back to square one. Following are the steps we took:
a. We listed our creditors and chose to pay off the ones with the least amount of balance while making minimum payments to the others.
b. When the first debt was paid off we took the amount we were paying and applied it to the next one on the list.
c. We repeated the process until we were paying large amounts each month to the final credit card.
d. We changed our lifestyle. We rarely ate out, we drove used cars and took low cost family vacations only if we could do it without using our credit card. My wife shopped for bargains and clipped vendor coupons. It was difficult but well worth it to get back on our feet.
4. Use credit card sparingly, keep low balances and pay on time. Some writers advise us to destroy our credit cards once they are paid in full. I think it’s better to keep them and use them carefully to show the credit reporting agencies that you use credit wisely. In that way you can rebuild your credit rating - making available more options to fund your real estate purchases.
5. Establish a realistic monthly budget and stick to it. It’s the only way to get out of debt and rehabilitate your credit.
6. Be extremely careful with the equity in your home. You don’t want to draw out your equity and pay off your debt if you’ve not cured the problem. I’ve seen many people get into debt, refinance their home (or get a Home Equity Line of Credit), and spend their equity while not addressing the real issue of uncontrollable spending.
7. There are many resources available to help you overcome your indebtedness so use them. Someone has said, “the more you learn, the more you earn.” That is true with regard to building a good credit rating.
Use these basic steps to start immediately paying down your debts. You will have many more nights of sound sleep knowing that the phone is not going to ring with a collector at the other end wanting his money. As a bonus, you will be able to get more real estate under contract, and closed, as more avenues of finance open for you based on a strong credit rating.
Don is the President of the Oregon Association of Professional Real Estate Investors. You can meet him at http://www.oaprei.com/ or www.RealCashFlow.net. While there be sure to sign up for Don's newsletter.
Copyright 2007 by Don Loyd
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment