Credit score mix

The Must-Know Basics About Your Credit Score

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What a credit score is and why you should care (if you care about your investments).

There’s a magical triple-digit number that seems to decide your fate in this world.

It can determine what car you drive, where you live, and how much money you can have at your disposal.

And in some cases, it can make or break your success as a real estate investor.

It’s your credit score.

But it’s not as magical as it seems. There’s a logic to your score, and you have the power to change it.

So let’s break it down.

What is a Credit Score?

A credit score is a way for lenders to determine your “creditworthiness.” In other words, your “you-can-trust-me-to-pay-back-your-money”-ness.

Because you know whether someone can trust you with their money. But financial institutions don’t know you like you do.

Lenders need a way to decide if you’re safe to lend to. So your score tells them the story of your financial habits.

How Is My Credit Score Calculated?

There are a couple different types of credit scores, but the numbers we’ll use here reflect FICO scores (the most widely used credit score for most lenders).

Credit scores range between 0 and 850. More than 740 is great, and a score of less than 700 begins to limit your options.

This number is calculated by looking at five main pieces of information:

  • Credit mix
  • New Credit
  • Credit History
  • Payment history
  • Amounts owed

Credit Mix

Close to 10% of your score is based on the mix of credit you already have.

Do you have seven credit cards?

Or zero?

Do you have a car payment, a mortgage, student loans, personal loans?

Typically, the more diverse your lines of credit are, the better it is for your score.

New Credit

Around 10% is based on “new credit,” or how often you get credit inquiries or open a new line of credit.

New credit can temporarily lower your score. So for example, if you buy a new car, you’ll probably have trouble securing a loan for a property right away.

Length of Credit History

About 15% of your score is calculated based on how long you’ve had your lines of credit.

If you opened your first line of credit less than 5 years ago, you’ll have a lower score than someone whose credit is 40 years old.

Amounts Owed

These last two categories are the most important. They make up two-thirds of your credit score.

About 30% of your score is determined by something called amounts owed. Amounts owed is about your debt. More specifically, it’s about how much of your available credit you’re using.

For example, let’s say your credit card has a max of $1,000. You buy a new set of tires and brakes, so now you owe $1,000 on your card. You’re using 100% of your $1,000 limit – you’re maxed out.

The story creditors see when they look at you is that you’re not managing your credit well. They’ll assume you won’t manage other loans well either, so you get a lower score.

But let’s look at another situation.

Say you got a different credit card with a max of $5,000. That same borrowed $1,000 has a way different effect on your credit score. You’re only using 20% of your credit line, and you’re leaving 80% at your disposal. Creditors like that story. So you get a higher score.

Payment History

The biggest amount of your score, up to 35%, is based on your payment history.

Payment history is exactly what it sounds like:

  • How are you paying your bills?
  • Do you always pay on time?
  • Have you had any bankruptcies?

Financial institutions can see this information, and it’s the top factor they consider. At the end of the day, lenders want to know: Will you pay them back? On time?

Need More Information?

Your score is incredibly important to keep on your radar. Especially when you’re investing in real estate.

It’s not a made up number that has no effect on your life. But it’s also not as difficult to understand as it may seem at first.

For more tips on building good credit and maximizing real estate investment leverage, check out these helpful videos on our Youtube Channel.

You can also download our Credit Score Checklist at this link.

Happy investing.

Make money with your credit

Making money with your credit score.

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So, what’s the big deal about credit scores?

Well, think of it like a baseball game.

You can hit it out of the park and claim victory…or strike out and lose.

When you win the credit score game, you win countless opportunities.

These include affordable rates, more loan options, and, in the end, hundreds of thousands of dollars. In this video, we discuss 3 EASY ways to boost your credit score…and your cash flow!

How to Make Money with Your Credit Score Need a tool to generate positive cash flow? Download our FREE Loan Optimizer!

Learn more about how credit can fuel your investments on our YouTube Playlist.

WHO WE ARE ======================== Hard money loans are a necessity for most real estate investors. Mike Bonn and his team make them easy! For 21+ years, Hard Money Mike has provided topnotch lending services to real estate investors across the United States. We offer the best options in private lending for fix and flips, rentals, and other value-add properties. Plus, we can fund bridge loans in 10 days or less! If you’re looking for quality, FAST loans with the highest loan-to-values and best rates, then our team is ready to help. No experience required!

Making money with your credit score.

The impact of your credit score

How Your Credit Score Impacts Your Real Estate Investments

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If you want to maximize leverage in your investments, you need to know this key information about your credit score.

There’s nothing more disappointing than this…

You’ve searched everywhere, but can’t seem to find a decent loan.

Money keeps getting sucked away with high interest rates and down payments.

Even when you find good properties, you never seem to come out on top.

…But your real estate investment was supposed to help you start living your dreams.

What’s going wrong on the money side of your investments?

Your Credit Score Matters

Your credit score could be the number one thing holding you back.

A credit score impacts cash flow from real estate investments. It determines interest rates, out-of-pocket costs, and what kinds of loans you can get.

With a low credit score, you’ll have:

  • Higher interest rates
  • Higher down payments
  • Fewer loan options available

What Is a Credit Score?

A credit score is a number between 0 and 850 that tells financial institutions whether or not it’s wise to lend to you.

Your score is determined by several pieces of information about your finances.

But the two most important are payment history and accounts owed.

It comes down to:

  1. Do you pay your credit cards and loans back on time?
  2. And do you use less credit than is available to you?

What Should My Credit Score Be?

With a score of 800, you’re almost guaranteed to hear “yes” from any lender.

At 740 and higher, you’ll still have access to the best loans with the best rates.

Between 670-739 is still a good position, and you can get decent rates.

And a score below 670 will be detrimental to your real estate investing experience.

Lending credit scores

Lending credit scores

But if you’ve just realized you have a low credit score, don’t lose hope.

How Can My Credit Score Maximize My Leverage?

The higher your credit score, the higher your leverage. Lenders look for people with high credit scores. Having a better score will open up doors for you to find:

  • Better loans
  • More quickly than you would with a lower score
  • From a wider variety of financial institutions

Interest Rates

A good credit score will get you loans with better interest rates.

A significant amount of money can leak out of your deal from bad interest rates brought on by your credit score.

To put it in perspective: If you end up paying $500 per month on interest, that becomes $18,000 after three years. That’s $18,000 that could have been your profit that goes directly to the lender instead. With a better credit score, you can find a loan that keeps more of your money in your pocket.

Down Payment

Let’s say you found a great property for sale for $300,000. With good credit, you may only be asked to put 10% down – or potentially even 0%! With a lower credit score, though, you’ll likely be asked for a 20-25% down payment.

For the same $300,000 deal, good credit can mean the difference between paying $30,000 out-of-pocket or $70,000!

What To Do Next

Your credit score determines whether you take the easy road or the hard road with your real estate investing experience.

If you don’t already have a credit score of 800, focus on raising your credit score before anything else. Doing this will earn you:

  • Lower interest rates
  • Lower down payments
  • More loan options
  • A more successful investment!

It’s hard enough to find properties, find contractors, find tenants, find sellers… make it easier on yourself to find lenders.

We want to help you succeed in your investments.

For more help with understanding and improving your credit score as a real estate investor, check out these helpful videos on our YouTube Channel.

You can also download our Credit Score Checklist at this link.

Happy investing.

The Cost of Credit: How Much Is Your Score Costing You?

The Cost of Credit: How Much Is Your Score Costing You?

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The Cost of Credit: How Much Is Your Score Costing You?

Do you know the cost of credit and how much your score is costing you?

Well, it could be adding 10+ years of extra payments to your life.

Yep, you heard that right. Ten or more years worth of payments! That could be as much as $500,000 you don’t need to pay, and all because you don’t have an ideal credit score.

That’s why today we’re going to dive into the impact your credit score has on your real estate deals…and your wallet.

If you don’t fit into a standard loan’s very strict (and small) box, then it can cost you dearly.

So, why does this happen?

Because there are many kinds of loans, but the ones with the best rates and terms are Conventional (aka, “standard”). If you can’t qualify for these affordable loans, then your costs jump considerably when you move to Non-QM (aka, “non-standard) loans.

Right now, in this market, the difference between a standard and a non-standard loan is 2 to 3 points.

That’s thousands of dollars. 

In the video above, we compare two investors who have different loans with different rates. Even though they both paid the same amount for a property, the outcome of what they pay might surprise you…especially when they start buying multiple properties.

Investor 1 pays a lower rate than Investor 2.

So, let’s breakdown their payments based on a loan amount of $200,000…

Every month, Investor 1 pays $954.83 for their property. Meanwhile, Investor 2 pays $1,264.14. That’s about $310 more than Investor 1 per month.

Now, let’s take that another step further:

Both investors eventually purchase 5 properties to add to their real estate portfolio. The difference in their total payments is about $1,500 per month (yikes).

If we take that number and look at what happens every year, Investor 2 will pay about $18,500 more than Investor 1. All because their credit score was too low to get a loan with affordable rates.

And here’s where you can see the biggest impact: Over the life of the loan (about 30 years), Investor 2 will pay over half a million dollars more than Investor 1.

Now you can see why your credit score matters.

How can you make sure you pay cheaper rates and qualify for standard loans? Well, check out some of our helpful tips on Youtube. Plus, our team is always here to help.

Happy investing!

Low Credit Score: A Quick, Easy Solution

Low Credit Score: A Quick, Easy Solution

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Low Credit Score: A Quick, Easy Solution

Do you have a low credit score? If you do, then it’s likely making a big dent on your cash flow. Because a low score means paying higher rates. And higher rates mean less money in your pocket.

 

 

 

 

 

 

 

 

 

 

At Hard Money Mike, one of the main questions we hear from real estate investors is, “What credit score do I need to get a loan?” And when they hear the answer, many of those investors are unhappy about it.

Because they have a low score…too low for a traditional loan, at least. And traditional loans have some of the lowest interest rates available.

But, why is your credit score so low?

Well, there’s some common issues you probably already know about (ex: unpaid bills, late payments, etc.). But did you know one of the biggest issues is high credit card balances?

 

Yes, even if you pay some of your credit card off each month, as long as you maintain a high balance, then it’s going to ding your credit score.

For example, if you have a maximum credit line of $8,000, and you maintain a $6,000 balance, then creditors think you’re a high risk. Therefore, they penalize you by taking points off your credit score.

To make matters even more frustrating, many real estate investors have to use their credit cards to pay for renovations on a value-add property. Otherwise, their project might stall.

What can you do?

Well, technically, the best solution is to get a loan to pay off your credit cards.

But, if your score is too low, you won’t be able to get a loan.

AHHH!

Yeah, it can be a real conundrum. And we’ve seen it impact our clients countless times. So, here’s our suggestion:

Take your loan private.

Don’t go to a bank or another traditional lender. They will just reject your application. Instead, find someone (like Hard Money Mike) who can help you repair your credit score by setting up a private loan. That way you can:

  • Pay off your credit cards
  • Raise your score
  • Get an affordable loan AND rate

After you pay off your credit cards with a private loan, you can resume normal business. Just remember to keep your credit card balances as low as possible. In other words, don’t use more than 20-30% of your credit line. If you exceed that threshold, then quickly pay off what you can to drop it back down and protect your credit score.

Because a good credit score will lead to the best loan products. And the best loan products will produce the highest cash flow possible.

Happy investing!

Credit Score Basics: How Lenders Use FICO Scores

How Lenders Use Your FICO Score

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How Lenders Use Your FICO Score

Do you know how lenders use your FICO score? Because it’s vital to whether or not you get approved for a loan.

If you understand credit score basics, then you’ll have a much better chance of hearing a “yes” rather than a “no” from a lender. You’ll also gain a much deeper understanding of how your score impacts your monthly payments.

You see, when you have a decent credit score (700+), then you can expect to see more loan approvals. Especially from traditional lenders, like banks.

Plus, a good credit score will lead to good rates. And that means cheaper bills.

For real estate investors, a good credit score can make all the difference between positive and negative cash flow. And over time, that kind of business model can run you…well, out of business.

If you’d like a quick overview of how credit scores work and how lenders use them, then check out this explanatory video from FICO.

In this video, you’ll get a simple and fast explanation of how credit scores work. Again, this is vital if you want to succeed with your real estate deals. And your overall financial health. Your wallet will thank you for taking such good care of your credit score.

If you want more credit score tips, check out our Youtube channel! As we’ve stated throughout this article, we highly encourage you to understand the importance of your score so when it’s time to get a loan for your next value-add property (fix and flip or rental), you’ll have lots of options. And access to great rates.

Need some extra input on your credit score and how you can raise it? Our team is always here to offer advice and guidance.

As always, happy investing!

How To Make $250,000 with a Good Credit Score

How To Make $250,000 with a Good Credit Score

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How To Make $250,000 with a Good Credit Score

Did you know you can make $250,000 with a good credit score?

Yep, that’s right.

But, how?

Well, let’s pretend your credit score is fishing bait. If you have good bait, then you can catch something big and juicy. But if you have bad bait, then you’ll walk away from the pond with nothing but a sunburn and bug bites.

Yuck!

So, what creates a good credit score? Well, it depends on what you have in your tackle box.

A well-equipped tackle box includes:

  • Monthly bills that get paid on time
  • Credit cards with 30% (or lower) credit usage
  • And a diverse credit mix. That means you have multiple types of payments, like a house, a car, insurance, credit cards, etc.

When you have good bait in your tackle box (aka, a good credit score), then you can live the life you want. That means owning a house, a reliable car, a fat retirement account, and many–MANY–other things. The world is your oyster when you have good credit.

Because the higher your score, the lower your rates. And the lower your rates, the bigger your bank account.

In fact, if you have a 760 or higher score, then you can reel in an extra $250,000 by the time you retire.

But if you have a score under 650, then you’re going to have a tough time catching anything in life’s pond. Because lenders don’t like subpar credit scores. When they see your low score, they’ll reject your application or charge you expensive rates.

But don’t worry!

If you want to fish with the good stuff, then you just need to focus on raising your credit score. And it’s not all that hard to do so. It just takes a few quick, easy steps to boost your number. For example:

  • Pay your bills on time
  • Keep your credit usage under 30%
  • Get a loan to help you pay off your credit cards

Check out some of our other videos for credit score boosting tips.

Everyone deserves to own a shiny, well-equipped tackle box (er, credit score). If need advice or want to chat about yours, our team is here to help.

Happy investing!

What Is Bad Debt Versus Good Debt?

What Is Bad Debt Versus Good Debt?

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What Is Bad Versus Good Debt?

So, what is bad and good debt?

Well, before we jump into that, did you know there are two types? Because most of us were raised to believe ALL debt was bad.

But no. That’s not true. At all!

In fact, good debt is necessary to build your credit score. Without it, you can’t boost your FICO score and obtain low-rate loans for things like fix and flips, rentals, and other value-add properties.

So, now that you know there is such a thing a good debt, let’s look at the difference between the good kind and the bad kind…

As you can see in the image above, bad debt is essentially any kind of consumer good. It’s something that doesn’t create cash flow. So, think about your vacations, cars, TVs, clothing, etc. They’re fun to have but not helpful to your bank account.

Good debt, on the other hand, pays for itself AND generates a profit. The best example is a real estate property. If done right, you’ll gain equity on most of the properties you purchase. It can be instant equity (aka, a fix and flip) or long-term equity (your personal home that has a 15-30 year mortgage). But, as long as you pay your monthly mortgage, owning a home tends to be a great investment.

So, the next time you hear the word “debt,” don’t cringe. Instead, ask yourself, “Is this the kind I want?”

If it’s bad (because nobody can get through life without having some bad), stop and ask yourself this: “Is this something I need?” Or, more importantly, “How quickly can I remove this from my credit history?” In other words, how can you pay for it without using a credit card? Because as long as you pay your bills and maintain a healthy credit usage (under 30%), even bad debt can be okay.

It’s all about balance and healthy finances!

Have questions? No problem. Our team is always here to chat.

Happy investing!

How Your Credit Score Can Make You Thousands of Dollars

How to Make Money with Your Credit Score

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How to Make Money with Your Credit Score

Today, let’s chat about how to make money with your credit score.

Your credit score is kind of like a baseball game. With it, you can knock it out of the park and enjoy great success with your finances. Or you can strike out, and–well–lose (ouch).

 

When you “win” the credit score game, you win countless opportunities. These include:

  • The best interest rates
  • Affordable loans
  • And, in the end, hundreds of thousands of dollars.

Yes, you read that last one right. Hundreds of thousands of dollars. Because a good credit score means cheaper rates. Which means cheaper bills. Which means you save A LOT of money over the years.

Before we go on, let’s talk about what a “winning credit score” look like.

Winning Credit Score

Most lenders like to see scores in the 700’s or higher. Anything lower will likely lead to rejections and expensive rates.

But what if you have a score under 700? Nobody wants to walk up to the plate and strike out, right?

Well, let’s take a look at 3 strategies to help you prepare for this financial ballgame.

Increase Your Available Credit

Pick up the phone and call your credit card company so you can apply for a higher limit. Why? Because then it’ll be easier to keep your credit usage at or below 30%.

What do we mean by that? Well, let’s take a look.

If your credit card balance is $8,000 and you have a maximum credit line of $10,000, then creditors can see you’re using 80% of your available funds. Yikes! In their critical eyes, this means you’re a risk–a BIG one–and you might not be able to meet your financial obligations (i.e. you won’t be able to pay them back).

Not good.

Now, if your credit card balance is $3,000 and you have a maximum credit line of $10,000, then creditors see you’re only using 30% of your available funds. That’s much, much better. In fact, it could be a home run in the eyes of lenders.

Because when you manage your credit usage, creditors will think you’re financially responsible. AKA, you pay your bills. And that will lead to more loan approvals and lower rates.

Yay!

Pay Extra

A large chunk of your credit score revolves around your monthly reported balances to the credit bureaus.

So, it always helps to pay extra on your credit cards before your next statement. If you do this, the credit bureaus will be happy with you. Very happy! That means your score will rise.

Now, if those first two strategies don’t work for you, then you can always take a more creative third approach (one we’ve recommended to many clients).

Get a 60 to 90 Day Note

Basically, you can get a loan to pay down or pay off your credit cards. You can get one from a bank, a family member, a friend, or a private lender. This way you can keep your real estate projects moving along and your cash flow, well, flowing.

Make Money with Your Credit Score

If you take one, two, or all three of these steps to boosting your credit score, then you’ll have a much better chance of getting lower rates and generating thousands of dollars over time.

And if you play the game right, you can knock it out of the park and make hundreds of thousands of dollars!

Happy investing!

Understanding Your Credit Card Debt And Your FICO Score.

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Understanding how your credit card debt is affecting your FICO score matters, and as a real estate investor as it can save you or cost your thousands of dollars!!