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If you’re considering a career in real estate investment, it’s a good idea to check your credit rating first. Without a good to excellent rating, your chances of borrowing money from lenders are slim, particularly when credit tightens. Don’t know your credit rating? Then, it’s time to check with one of the three major credit reporting agencies (in the U.S.): Equifax Information Services LLC P.O. Box 740256 Atlanta, GA 30374 800-685-1111 www.equifax.com Experian National Consumers Assistance Center P.O. Box 2002 Allen, TX 75013 888-397-3742 www.experian.com TransUnion Consumer Solutions P.O. Box 2000 Chester, PA 19022-2000 800-916-8800 www.transunion.com If you’re not familiar with the purpose of the “Big Three”, essentially they act as a “clearinghouse” for lenders; that is, they collect financial information and then sell that information to banks, credit card companies, mortgage companies, and other lending agencies. Lenders, in turn, use that information to decide if you’re a good risk. If a low credit rating is affecting your ability to borrow money, then it’s time to get work at raising your credit score. One of the best ways to do this is by eliminating debt. Here are the steps to doing that: • Step 1: Pay off your credit cards! Credit card debt is a killer. First of all, credit cards are so convenient, it’s easy to fall into the trap of using them all the time. When you do that, the interest rates eat you up. Second, credit card companies keep enticing you with “special offers:” e.g., lower rates for six months, debt transfer offers, etc., so the temptation is to keep on spending, spending, spending. Don’t get me wrong. There’s nothing wrong with credit cards per se. They offer convenience and flexibility. However, excessive credit card debt is like a vampire; it keeps you financially weak while it feeds off your life’s blood. So, pay off that debt as quickly as possible before even considering a career in real estate investment. And, definitely don’t open unneeded credit card accounts in an effort to increase available credit. • Step 2: Pay your bills on time—every time. Lenders—and by extension, credit reporting companies—love regular payments. To them, it’s proof that you’re reliable and a good risk. That proof leads to a good credit score. • Step 3: Budget! If you have debt of any kind, you need to save money to reduce or get rid of it. That calls for budgeting to eliminate unnecessary expenditures. You may wonder what standard you need to follow in order to determine if your debt is too much. The answer to that question is called the debt to income ratio. It’s a simple method of measuring your net monthly income against your debt. Here’s an example: Assume your net monthly income is $2000, and your monthly debt payments are $500. To calculate your debt to income ratio, divide $500 by $2000: 500÷2000 =.25 (25%) In general, financial experts agree that debt expenses should be 25% or less of your income. If you have a ratio of 10% or less, then you’re in great shape! However, if you have a ratio above 25%, then that should be a red flag for you (and will likely be for lenders). If your ratio is that poor, then you definitely need to reduce or eliminate your debt before you consider a career in real estate investing. In order to figure your debt to income ratio, you need to gather information on your income and expenses. So, do the following: Check last month’s bills and total up all the fixed expense items (rent, mortgage, car payments, child support, loan payments, etc.) Check your credit card bills. Total the minimum payments owed on each card. Figure out your net salary (monthly take-home pay). Divide monthly fixed expenses by monthly income to get the debt to income ratio. If the debt to income ratio is less than 25%, good for you! You’ve demonstrated the discipline it takes to become a real estate investor. If the ratio is 25% or greater, then it’s time for you to develop financial discipline! Key Point: Objectively assess your current financial situation and then, if you have excessive debt, do everything in your power to eliminate that debt. The result will be a better credit score and the opening-up of opportunities within the real estate market.
Article Source: http://www.realestateinvestmentarticles.net
www.askjacksternberg.com www.jackthinks.com Jack Sternberg is a very experienced full time investor and the creator of the renowned “Buyers First Program”. As the “gurus’ guru”, he is well known by the professional creative real estate community as “Obi-Won Kenobi”. Having been a full time investor since 1977, Mr. Sternberg has been “at” the closing table more than 1,500 times. Mr. Sternberg has bought and sold in excess of 1,500 single family homes and 4,000 apartment units
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