6 Ways to Boost Your Credit Score

As a residential real estate investor, your credit score is more than just a number – it’s a gateway to better financing options, more attractive loan terms, and a swifter path to scaling your investment portfolio. Understanding how to improve this critical aspect of your financial profile can be transformative. 

Let’s explore the best strategies that you, as a real estate investor, can use to enhance your credit, ensuring you’re in a prime position to take your business to new heights.

1. Regular Credit Report Monitoring

Start by keeping a close eye on your credit reports. Free services from platforms like AnnualCreditReport.com allow you to review your credit history from major bureaus. Look for errors or discrepancies that could unfairly drag down your score. Dispute any inaccuracies immediately.

Lenders typically set minimum credit score thresholds for loan eligibility, so it’s crucial to maintain a score that meets these requirements. (For Backflip, the magic number is 640, but can go lower with a guarantor.)

2. Manage Debt-to-Income Ratios

Lenders don’t just look at your credit score; they assess your debt-to-income (DTI) ratio too. A lower DTI is appealing, as it indicates a strong balance between your earnings and obligations. Work towards paying down existing debts, particularly high-interest ones, and be cautious about taking on new debts.

3. Optimize Credit Use 

To optimize your credit use, you want to make sure you’re following the “golden ratio”. This refers to about how much of your available credit you’re using at any given time. To maintain a good credit score, try to use less than 30% of your total credit limit.

For example, if your credit limit is $10,000, the “golden ratio” suggests that you should try not to use more than 30% of it. So, in this case, you’d aim to keep your balance under $3,000. If your balance goes over this amount, it can start to negatively impact your credit score. This rule applies to each of your credit cards and also to your total credit limit across all cards.

If you’re consistently going over the 30% mark, consider requesting a credit limit increase, but keep your spending the same to improve your ratio.

4. On-Time Payments are Non-Negotiable

Late payments can severely hurt your credit score. Set up reminders or automate your bill payments to ensure you never miss a deadline. Remember, payment history accounts for a significant portion of your credit score.

5. Manage Hard Inquiries

When venturing into new real estate investments, applying for loans is often inevitable. However, each loan application can lead to a hard credit inquiry, which might slightly lower your credit score temporarily. This is where choosing the right financial partner becomes crucial.

At Backflip, we understand the importance of preserving your credit score, especially during the pivotal stages of scaling your real estate investments. That’s why we offer a unique advantage: when you submit a non-binding loan application with us, we do not perform a hard credit pull. This approach ensures that your credit score remains unaffected while you explore your loan options!

6. Continuous Education and Professional Advice

Stay informed about credit and financial strategies specific to real estate investing. Consulting with financial advisors or attending workshops can provide tailored advice and new perspectives on managing and leveraging credit effectively in the real estate domain. Backflip frequently hosts webinars with financial and legal advisors who can help answer questions you may have about your business, but it’s always best to have your own advisor who can help tailor a strategy for increasing your credit score that is personalized to you.

Improving your credit is not an overnight process, but it’s a critical step in scaling your real estate investment business. By employing these strategies, you can enhance your ability to secure favorable loans, negotiate better terms, and expand your investment portfolio with greater confidence and efficiency. 

Remember, in the world of real estate investing, your credit score is much more than a number – it’s a foundational tool for building your investing empire.

*Disclaimer: The information presented in this article is intended for educational purposes only. The content is not legal, financial or investment advice. The material covered in this article is general information and may not apply to your specific legal, financial or investments needs. To obtain advice tailored to your particular circumstances, you should consult a licensed professional advisor.