Real Estate Deal Analysis & Advice

How to Improve Credit Score: Case Study of an Aspiring Investor, Month 8

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Wondering how to improve credit score in hopes of investing? Join us on our journey where we follow James, an aspiring investor, as he attempts to ready himself for real estate investing. It’s been several months since we checked in with James. If you remember, he’s the member with bad credit, looking to improve his score. I introduced him here and followed up the next month here.

As it turns out, following someone every month as they learn how to improve credit score and implement the steps isn’t all that exciting.

What is an Average Credit Score?

With credit scores ranging from 300 to 850, a score of 617 is pretty close to the middle; you’d think that was average. If you aren’t familiar with the FICO scoring system, this may seem pretty good. But the system skews toward the top. According to a article, this is how scores play out:

  • Excellent: 750+
  • Good: 700–749
  • Fair: 650–699
  • Poor: 600–649
  • Bad: 599 and under

James’s starting score had him one step above bad. His score didn’t change in his second month, and he started to have a bad run. James added a couple of side jobs — landscaping and basketball training — but winter came so landscaping went away, and his first basketball training client skipped out without paying him.


Related: Why Boosting Your Credit Score to “Excellent” Can Make You a Better Investor

He also had not budgeted for annual expenses, and car registration and license plates gave him a double hit in one month. The next month, more annual expenses nickel-and-dimed his extra cash, too.

A few months into the experiment, he was up to 636. Still seeing improvement, but pretty slow going — and still in the “Poor Credit” category although he was becoming more knowledgable about how to improve credit score.

Also, when we first met, James’s credit card was close to maxed out. Carrying a balance of more than 20-30% of the credit limit can hurt your credit score.

How to Improve Credit Score: Small Sacrifices Yield HUGE Returns

Spring is here, and with it came landscaping jobs again. James also added house sitting and working on a ranch to his side gigs. But more importantly, he stopped spending money. He decided that he does truly want to invest in real estate, and in order to do so, he needs to cut out any unnecessary expenses.

James brings his lunch to work every day. James hasn’t bought any new clothes, electronics, or miscellaneous items:

“I have my monthly spending pretty much down to a science. I make sure that my debt is paid off before I consider buying anything that isn’t food or a necessity.”

James isn’t missing out on much by bringing his lunch to work every day. His current wardrobe fits him just fine. By eliminating these extra expenses, he was able to pay down his credit card completely.

He has kept a $0 balance for two straight months, and while he had to put some charges on the card this month, he will have it paid back down to $0 again. His credit limit was increased last month as well, making it easier to keep a low debt-to-credit ratio.

In studying how to improve credit score, James learned that it doesn’t necessarily require huge sacrifices. James is still eating lunch, he just spends less on it, and he puts the difference into paying down his debt. He still wears clothes; he just isn’t buying new ones.

Steps to Real Estate Investing

James is also taking other positive steps to get him toward his investing goal. He currently doesn’t have enough money for a down payment, but he’s learning his market. As he saves, he is keeping an eye on properties and what they sell for, both before and after rehab. Once he has enough money, he’ll be able to recognize a good deal when he finds one.

James has contacted lenders, but he is not yet qualified for a traditional loan. He does have an agent, who is sending him properties whenever they appear on the MLS.

He analyzes multiple deals every week.

And he spends time daily on BiggerPockets, reading through the Forums and the blog. James has listened to every single podcast.


Related: 4 Ways To Build Your Credit Score Today (Without Spending Any Extra Time)

Take Your First Step

James contacted me about 9 months ago with a question you have seen repeatedly in the Forums.

“I’ve always wanted to invest in real estate, but I have bad credit and no money. How can I start investing?”

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I shared with him the steps he needed to take to improve his credit and get to a point where he could start saving.

It took him a while to figure out how to improve credit score, but once he did, once he took that first step, his chances improved.

It’s not enough to want to invest in real estate. You have to take your first step.

What’s holding you back from investing in your first property? Do you have any questions on how to improve credit score?

Let me know where you are in your journey — and what challenges you’re facing — in the comments section below.

Mindy Jensen has been buying and selling homes for more than 20 years. She buys houses, moves in, makes them beautiful, sells them, and starts the process all over again. She is a licensed real est...
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    Raymond Ebbeler from Largo, Florida
    Replied almost 4 years ago
    I joined and have a paralegal removing derogatory items for $99/ month
    Carl Mccrory from Oceanside, CA
    Replied almost 4 years ago
    I could be wrong, but the only derogatory information that can be removed from your credit history is anything that is false or inaccurate. This you can do yourself for free. The following links are sponsored by the government warning about these type of credit repair companies as scams. No one likes to think they have been paying good cash for nothing, but I would recommend you take a look at the following links.
    Lydia S. Real Estate Agent from Albuquerque, NM
    Replied almost 4 years ago
    Great topic! A lender I spoke with recently stated that it is ideal to have 2 credit cards, not more, and that they should be joint between my husband and I. Do you understand the point and why that’s ideal for a strong credit score?
    Dawn A. Rental Property Investor from Milwaukee, WI
    Replied almost 4 years ago
    The best credit is a mix of different types of credit and a low usage of debt. Suppose you have 1 credit card with a $5,000 limit and a balance of $5,000. You’re 100% utilized on your credit. Now suppose you have 2 credit cards with $5,000 limits each and have $2,500 balances on each. Now each card is only 50% utilized even though you have the same amount of debt. Ideally lenders want 30% or lower in your debt utilization.
    Dawn A. Rental Property Investor from Milwaukee, WI
    Replied almost 4 years ago
    More tips on improving your credit score: 1) Lower credit utilization — 30% or lower. So if you have a low credit card limit, try getting that limit increased and lower your balance by paying it off aggressively. 2) 15% of your score comes from your length of credit history — so don’t go closing accounts all the time. Keep accounts open a long time and use them periodically to keep them open. Then pay them off right away. 3) 35% of your score comes from paying bills on time — so make sure anything reported to your credit report is always paid within 30 days. On the due date is the best. 4) Check your credit report — for FREE — at least 3 times per year. You get one report from each agency — Experian, TransUnion, and Equifax — each year. Space them out every 4 months and you can keep an ongoing watch on your credit report. If anything isn’t legit, make sure to dispute it right away. 5) Don’t cosign for someone else’s credit. If they stop paying, it can hurt you.
    Patrick Wise from Spring, Texas
    Replied almost 4 years ago
    I’ve always wondered about #1. When is the utilization considered? For example, if you max out your card day one, but pay it down to 30% a couple days later, is that fine? That’s my impression. Basically, is it only harmful if you carry over a 30% utilization to the next month? Whenever I personally, go over 30% utilization, I just make a payment soon after to get it back to around that percentage and then I have an auto payment to pay off my balance in full at the end of the month.
    Mindy Jensen BiggerPockets Community Manager from Longmont, CO
    Replied almost 4 years ago
    Great question, Patrick. I believe it is when your statement cycles through and you receive the bill that it counts as utilization.
    Mindy Jensen BiggerPockets Community Manager from Longmont, CO
    Replied almost 4 years ago
    Thanks, Dawn. I couldn’t have said it better myself.
    Susan Maneck Investor from Jackson, Mississippi
    Replied almost 4 years ago
    Here is a trick for improving your credit score which I found out about accidentally. When my son was teenager I added him as an additional user on one of my credit cards. I didn’t give him the card, I’m not stupid. I kept it locked up but if I needed him to run an errand for me, I’d give him the card which he would bring back to me when he was done. Years later before he graduated from college, I checked his credit score and found it was over 700. He had inherited the history on that credit card! So if you have a poor credit score and you have a family member or friend with good credit ask them to add you as an additional user but *not* give you the card. It works.
    Mindy Jensen BiggerPockets Community Manager from Longmont, CO
    Replied almost 4 years ago
    I love this suggestion, and I think my parents did this for me, too because I’ve had ridiculous credit since I started out, but my first card was a joint card with my parents and my sister and I.
    Laurie Roth from Yukon, Oklahoma
    Replied almost 4 years ago
    Brilliant idea, Susan! I was just talking with some friends about the lack of financial education & opportunity for teenagers to build credit so that they don’t need a co-signer for everything when they go out on their own. And the optimal credit usage is actually 10% or less of total available credit. My husband & I have increased our scores from 750’s to over 800 in less than a year by sticking to a budget & utilizing 8% or less!
    Tapanga Matthews from Mississauga, Ontario
    Replied almost 4 years ago
    You are all sharing credit GOLD. I’m definitely taking notes. This is all extremely helpful. I’m also new to real estate and could use cleaner credit and some funds. The first step is clearly cleaning up that credit. thank you so much for the insight BP fam! Best regards T. Matthews
    Mindy Jensen BiggerPockets Community Manager from Longmont, CO
    Replied almost 4 years ago
    I’m so glad this is helpful, Tapanga! Thanks for reading.
    Glenn Toler Investor from Oldsmar, Florida
    Replied almost 4 years ago
    I am new to biggerpockets and I found this thread very helpful. I have managed to raise my credit score by 100 pointsin the last 4 months, using these same tips expressed in the posts. once you start working on improving your score ….it’s the little steps that count like keeping the utilization rate to 10% or below and paying the bills on time, and trying very hard to keep a 0 balance. Keep up the good work on these posts. Glenn
    Raymond Ebbeler from Largo, Florida
    Replied almost 4 years ago
    Knowing that I have a bad credit score is getting clarity but having an attorney work on my behalf is one investment is getting by affairs in order. As I do not have the time or patience to write dispute letters I could certainly save money since that action would be free. However, I can also delegate that to an attorney who will also be a future real estate team member practicing law relative to real estate transactions. So I am paying a retainer (if you want to call it that); no really I am building a trusting relationship with the attorney who has voiced an interest in helping me with legal issues that arise in doing real estate investing and support from the law firm is a priority for future deals. I am not ready til I attain a 720 credit score and during the interim I can still be educated in real estate. However, I also became a credit restoration specialist to get paid helping others through referrals to the same attorney who will pay me a referral fee (actually the law firm will pay me $50.00 referral for every client that uses his services. I believe win/win is an appropriate word here.