The Importance of Knowing your Credit Score

Before you begin making any kind of foreclosure investments, you must realize the importance of knowing your credit score. 

Investing in real estate and making your fortune is possible without perfect credit; although, it is a lot easier with good credit.  You need to be persistent.  Remember, “The squeaky wheel gets the oil”.  Don’t give up.  It may take a while, but even with poor credit there are lenders out there that will provide financial assistance.

Before you attempt any real estate deals, you need to know specific things about your credit.  First, you need a copy of all three (Trans Union, Equifax, and Experian) credit reports, which in this computer information age you can easily find online.

The main thing you want to look for on your current reports is if you have any adverse information listed.  “Adverse information” includes things like late payments, collections, judgements, etc.  If you do have any adverse information on your reports and have the money to pay them off, do it right away.  The better your credit becomes, the more deals you can make.  However, as stated before, you can make deals if you have bad credit.  It is just easier if you don’t.

The next step is to know your credit score or FICO score (Fair Isaac Score).  Banks and lending institutions use this score to determine how good or bad of a credit risk you are.

The following table will help you understand where your credit ranks:

Credit score/Rating

700 or over/Excellent (A+ credit)

This score signifies no significant (60 days or more) late payments on any type of credit payments in the prior three years.  These people can receive slightly better rates on certain loan types.

699-660/Very good (A credit)

659-620/Good (A credit)

These scores signify no significant (60 days or more) late payments on a mortgage loan in the prior two years and only isolated minor lates on credit payments in the prior two years.  These people can receive slightly “market” rates on all loan types, including government loans.  Any bankruptcies must be cleared and discharged for four years to qualify as having “good” credit.

619-590/Fair (B credit)

This score signifies some significant (60 days or more) late payments on a mortgage loan in the prior two years and widespread minor lates on credit payments in the prior three years.  These people will receive slightly higher rates on all loan types, except government loans (FHA, VA), which will not rely solely on credit scores.

589-480/Bad (C credit)

This score signifies MANY significant (60 days or more) late payments on a mortgage loan in the prior two years and widespread MAJOR (60-90 days) lates on credit payments in the prior three years.  People with C credit typically will receive higher rates and higher required equity or down payment on all loan types, except government loans. 

In most cases, a score of 520 is the cutoff for APROVAL from Portfolio loan buyers whose loans are equity driven.  Bankruptcies must be discharged at the time of a loan application to qualify as having “Poor” credit.  Current charge offs, bad debts, and judgements sometimes need not be paid off to get a mortgage.  The penalty though is a reduced pool of lenders, high rates, and stiff prepayment penalties, if you refinance within three years.

Another factor in determining your credit score are the number of inquiries you have.  Many applications are rejected because the applicant has too many inquiries.  By a general rule “too many” inquiries are defined as more than six to eight inquiries on your credit report.  The credit bureaus have told creditors that if a person has more than this on their credit report that they are bouncing around looking for credit, which generally indicates that they are either desperate or careless.  Of course, they never consider that you may just be shopping around for the best loan.

If you do have more than six to eight inquiries on your credit reports, the new FCRA (Fair Credit Reporting Act) says that no inquiry can stay on your report for longer than a year.  So, if your report shows inquiries older than that, you can remove duplicate inquiries.

It is very important to know your credit.  If your score is between 620-700 or more, then you can negotiate better terms and better rates for your loans.  But, if your credit is in the lower numbers, you can still get loans, but you just have to “roll with the punches” and take a higher interest rate until your credit gets better.

Before you make any deals, we cannot stress the importance of knowing your credit.

Your credit score will place you in one of three categories:

1.      A borrower with a score of 680+ will be considered for an A+ loan.  This type of loan will involve basic underwriting, probably through a “computerized automated underwriting” system and be completed within minutes and may close within a couple of days.

2.      A borrower with a score below 680 but above 620 will find that lenders will take a closer look when applying for a loan.  Supplemental credit documentation and letter of explanations may be required before an underwriting decision is made.  This scoring range may allow borrowers to get an A loan, but closing may take several days to several weeks.

3.      A borrower with a score of less than 620 may find themselves locked out of the best loan rates and terms offered by lenders.  These borrowers are usually diverted to alternate funding sources.

Just remember, just because your credit is not A+, with patience and some work with creative financing, you can still make the deals you want to make.  Your credit can and will always change, and when you start closing deals and paying those lenders back, it will continue to increase little by little.  So, financing your deals will get easier and easier.  Just be patient and persistent and remember the importance of knowing your credit.

KimberlyAnn