Every investor, at some point in their career, will rely on credit when they least expect it. When you do it will be your credit score that determines exactly what you are qualified for. A good argument can be made that your credit score is one of the most important factors in your business success. Even if you utilize hard or private money and avoid lender financing you can bet you will need credit at some point down the road. A furnace in your rental property may break or there will be a deal that you need to finance. With strong credit scores more options will be available. On the flip side, if your credit is poor you may not be able to get out of an unexpected mess. Here are six tips to help stay on top of your credit score.
- View report monthly. It is impossible to stay on top of your credit report if you don’t know what’s on it. Every real estate investor should have some means of viewing their credit report monthly. There are plenty of reliable websites that can provide you with your score, a copy of your report and real time alerts of any activity. An erroneous account that pops up on your report is difficult, and time consuming, to get rid of. You are much better off trying to prevent new accounts than dealing with them.
- Write letters to creditors. The minute you see something on your report that shouldn’t be you need to act. Start by reaching out to the credit bureau and getting as much information as possible. They should have at minimum a name, address or phone number. Calling sounds like a good idea but often is a waste of time and will only leave you frustrated. You should write, or type, a letter to all credit bureaus and the specific creditor. Explain your situation and offer as much proof as you can as to why you are not associated with this account. It is important to keep a copy for yourself and follow up in five to seven days.
- Pay off old accounts. If you are like most people you probably have at least one old account, you long forgot about. As you review your credit report it is important to make note of any, and all, accounts listed. Something as seemingly innocent as an old $500 credit card from college can be doing damage to your score. This account has since gone to collections and is on your report monthly, possibly without you knowing it. Paying it off may not be as simple as you think. Collection accounts get sold to and from creditors all the time. If your account has been sold the former account hold may not have any idea who you should contact. This can lead to a cat and mouse chase in trying to find where to make a payment.
- Keep paper trail. When you do finally track down who to make your payment to it is essential to keep a paper trail. Making a payment does not automatically wipe the account off your report. In most cases the bureaus are contacted, but this is not always the case. There are times when Transunion, Equifax or Experian are not notified about the account and the creditor remains on your report. Without a paper trail or some kind of proof of payment it is difficult for them to take your word. You should keep any formal letter or email you receive from them, a proof of funds used for the payment and any receipt you receive. This should act as insurance incase the account is still on your credit report in 30 days.
- Autopay. There are times when you are forced to deal with unforeseen circumstances that impact your finances. You are forced to juggle your bills and inevitably something must be left out. Creditors don’t know if you missed a payment by mistake or because of a lack of capital. If you have money to pay you can’t get sloppy and not make a payment. It is a good idea to put the bills on your credit report (mortgage, car payments, credit cards) on autopay. This eliminates the chance that you simply forget to make a payment and keeps your credit on point.
- Understand scoring. Paying your accounts on time is not enough to guarantee a strong score. Timely payments are certainly a big factor, but they are far from the only consideration. Something called credit card utilization can have just as big of an impact. Simply put this is the amount of credit you have per each account. If you are nearly maxed on a balance of $1,000 on several accounts your score will take a hit. Credit companies view you as a risk with minimum ways to obtain credit in a pinch. This is just one of the factors in determining your score. The more you understand how your credit is scored the easier it is to do something about it.
You never know when you will need credit in some facet of your business. Without strong scores you may not be able to solve a short-term problem or follow the path you want in your career. You should always know where your credit score is and how you can improve it.