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How to Build your Credit to enhance your Investing
opportunities
Written by: Jeffrey Ringold
Copyright 2005. All rights reserved.
So, you want
to invest in real estate!
One of the first obstacles that most new investors talk
about when investing in real estate is poor credit. I am asked repeatedly if my system will work
for someone with poor or no credit. My
answer is always the same YES!
I am not going to sugarcoat my answer because, there is no
doubt that good or even great credit will make it easier for a real estate
investor to make deals, but that does not mean that you MUST have good credit
in order to get started in your real estate career.
I will say that it is important to improve your credit if
you intend on pursuing a career in real estate investing and there are numerous
ways that can be done.
In this report we will be discussing how you can IMPROVE
your credit to make your real estate investing career even more lucrative and
to maximize your profit potential.
The topics are going to include:
*How to build credit with banks
*How to check your credit report for errors
Let me reiterate. YOU DON’T HAVE TO HAVE GOOD CREDIT TO
INVEST IN REAL ESTATE, but if you can improve your credit, you can use it as
one more tool to earn massive profits in real estate.
If you are like most Americans, you are probably buried in
credit card debt. If you are not, count your blessings to be one of the
fortunate few who has respected your credit cards.
Unfortunately, the reality is most of us have credit card
debt and most of us have blemished our credit along the road because of it.
Much is to blame on the old saying “keeping up with the Jones’s.”
It has become part of our culture to spend more than we can
afford to spend and as a result we have a nation that is ailing from debt.
The most important step in starting to improve your credit
is to find out where you stand right now.
You can obtain a free copy of your credit report at:
http://www.consumerinfo.com
According to Equifax, one of the largest credit reporting
agencies, nine ways to improve your credit are:
9.
Learn what your current FICO® Credit Score is and what
appears on your credit report.
8.
Don't open new credit cards that you don't need just to
increase your available credit. This approach could backfire and actually lower
your score.
7.
Try to keep your total account balances as low as possible.
High outstanding debt may negatively affect your score, as you have a greater
chance of missing payments.
6. Correct any incorrect information that
might appear on your credit report.
5. If your credit is severely damaged, or
you have a very short credit history, there are still ways to improve your
credit over time. Consider opening new accounts responsibly and paying them off
on time.
4. If you fall behind on paying a bill
because of illness, unemployment, or family issues, write a short explanation
to the credit reporting agencies. They will add it to your credit report. Also,
call your creditor to explain the circumstances and, if possible, work out a
payment schedule you can meet.
3. To minimize the number of inquiries on
your credit report, don't apply for multiple credit cards over a short period
of time, or for a card you're not likely to get. Apply for new credit accounts
only as needed.
2. Make all of your payments on time. If
forced to miss a payment, be sure to pay the following month. Accounts more
than 60 days past due will be indicated on your credit report.
1.
Continue to check your credit report regularly, correcting
errors and inaccuracies that can damage your credit score.
Once you know where you stand, you make efforts to improve
your situation. Often times credit can
be improved simply be correcting errors on your credit report. So find out now
what your credit score is at: http://consumerinfo.com
Now that you have your credit report and have followed the
steps in part one, we will discuss another way to build your credit.
One great technique for building credit is by using installment
loans at banks. This is what you need to
do.
Contact three local banks and ask them what their minimum
installment loan is. Many banks will say $500, but some will be lower and some
will be higher.
Once you know the minimum amount for an installment loan, go
to that bank and buy a Certificate of Deposit for the same amount. (A
Certificate of Deposit is like a savings account, however you deposit the money
for a certain amount of time. For example 30, 90, or 180 days. During that time, you can’t withdraw the
money.)
For example, if the minimum installment loan is $500, then
purchase a Certificate of Deposit for $500.
Next, wait a week or two and then return to the bank. When
you return, tell them you would like a six-month installment loan for $500 (or
whatever amount your Certificate of Deposit is for) and that you will pledge
your CD for collateral.
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If they ask why, tell the truth. You are trying to build
credit with their bank. There should be no reason that the bank will
not lend
you the money because it is secured by your Certificate of Deposit.
The bank may give you a coupon book or they may send monthly
statements for you to make payments. No matter what method they use, you want
to pay 3 payments in the first month. This will show that you are actually
paying the bank faster than what was promised.
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After the first month, just send your regularly scheduled
payment for the duration of the loan. Keep in mind you will be using the
borrowed money to repay you loan.
After the six months have passed, and you have repaid the
loan, return to the bank and ask for another six-month installment loan. This
time ask for the loan unsecured, which means you will not pledge your
Certificate of Deposit as collateral.
If the bank is not ready to loan you money unsecured, you
can borrow the money against your CD again and repeat the process until you
have built enough trust with them to lend you money unsecured.
If you follow these steps, you will reap two major benefits.
First, you will be improving your credit with the credit bureaus. An
installment loan needs to be a minimum of six months in order for it to be
reported to the credit bureaus.
Since you asked for a six-month installment loan, you will
build your credit rating by repaying the loan.
Secondly, you will build a relationship with the bank. Once
you have reached a point where the bank will loan to you unsecured, you will be
able to use your line of credit in the future to help buy, or perhaps remodel
your real estate investments.
Keep in mind that you will have to pay interest on the loan,
but this a nominal expense to build a relationship with the bank. The idea is
to slowly build your line of credit to be more and more.
If you think a bank won’t lend money to you unsecured, to be
to surprised because they do it all the time with credit cards!
If you have not checked your credit yet, do so now for free
at:
www.consumerinfo.com
Good luck investing!