Messy Credit? 7 Tips to Clean Up Your Credit Score

Messy Credit? 7 Tips to Clean Up Your Credit Score


The word “investing” can seem intimidating for many people; it can seem like a world reserved for the uber rich Warren Buffets of the world. Fortunately, this is not true! Even without a net worth of billions (or even millions), we can make smart investments that yield sustainable returns and enable us to build wealth. If you’re just getting started, one of the most critical assets you have is your credit score. But what if it’s not as strong as you – and potential lenders – would like?


Why Good Credit is a Must for Investors


Solid credit unlocks a number of doors when it comes to real estate investment financing. A good score tells lenders that you pose less of a risk in terms of lending. As a result, they extend lower interest rates and more advantageous loan conditions (e.g. longer lending periods).


Bottom line: a good credit score lowers your cost to borrow. So what’s “good”? It depends on the lender. In general, they want at least 660. If you want the best terms, it should be north of 740. If you have 20% to put down, even better. If not, your score should be at least 760 to offset that risk. You will also be required to purchase private mortgage insurance.


Is your credit score undermining your ability to finance investments and make a profit? Clean it up. Some tips:


  • Review your report regularly. Federal law entitles you to a free credit report every 12 months from each of the major reporting bureaus: Experian, TransUnion, and Equifax. Take them up on this and check your report.


Make sure your identifying information (name, Social Security number, etc.) is correct and review thoroughly to ensure that there are no discrepancies (e.g. “Hey, I paid that giant cell phone bill last year!”).



  • Look for accounts you don’t recognize. Is it likely that someone else’s account info will end up on your report? Maybe not – but it does happen. It’s worth looking. If you don’t recognize an account or if an account has a much higher balance than it should, it can indicate identity theft.




  • Look for old information. If you have a few black marks on your credit report, check their age. Most negative information should be taken off your report after seven years. If you had to file for Chapter 7 bankruptcy, that will stay on for 10 years.




  • Watch out for collections issues. Let’s say you have a credit card balance that you did not pay. The credit card company tried to collect and then sold the debt to a collections agency.



At this point, your credit report should reflect that the original debt is zero and a new account should be added (this one from the collections agency). Sometimes, though, both remain on the report, making it appear as if you have two outstanding debts when you have only one.



  • Get current. Make a plan to address past due accounts. Payment history makes up 35% of your score, so being late has a significant impact. Once an account is 90 days past due, they are “extremely delinquent.” You can try to negotiate with your creditors to remove these items from your report or pay them to delete. If they are 30 – 60 days late, make them a priority.




  • Look at your level of debt. This accounts for 30% of your score. If your credit card balances are more than 30% of your credit limit, chip away at these and then work on paying down other high-interest debts.




  • Dispute inaccuracies. If you notice errors, send a dispute letter to the credit bureau(s). You can find a good sample here.



It takes some time to turn around a subpar credit score, but it is worth the effort. A solid number in this area can help you access the world of investment on better terms.


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