I'm planning on using 0 % credit cards to fund a rehab project. I decided to not take the HML route since it takes a good chunk of my profits.
With that being said, I'm concerned how this could potentially ruin my credit. I'd like to know what would happen if I max all my credit cards and if my credit score will recover at some point.
If someone could also share some of their CC strategies, that would be very helpful as well.
Are you opening business lines of credit or personal lines of credit? The latter is a much worse idea than the former.
I'm sure everyone will have a different answer, but yes, maxing out ALL of your CCs will affect your score. I doubt it will affect it a whole lot. I had a lot of debt and my score did not go down much. I was also making all payments on time.
Also, think long-term. As long as your number work (and don't force them to work, be very conservative), then this should more than pay for itself.
I assume you don't have another way to fund your project? Hard money might be more than a 0% card, but it's an option.
Stay below 30% utilization, 50% at the very maximum. If you max out a bunch of credit cards, it absolutely will hurt your credit score. I ran into this when doing a buy/rehab/rent/refi project. It did impact my ability to do the refi.
In theory, if you max all your cards and pay them all off your credit should be better when you are done. In the meantime, your score will be lower and you will have some financial risk, but self-funding is not a bad way to go about rehabs; I've self funded all of mine because it's essentially free.
Thanks everyone for your prompt responses.
@Matthew Kreitzer It's a combination of both. Since I just opened the LCC, I don't have much funds available at the 0 % interest.
@Nicole W. I do have the option to use the HML, but I'm only 6 days way from closing. My contractor wasn't able to send me the SOW with all the numbers last week. I might consider refinancing through the hard money lender, but I want to keep costs as low as possible.
@Jon Holdman How long did it take your credit to recover? I have plans to buy a house for myself in the near future, probably within the next 6-12 months using conventional financing.
Can't really say. I was able to get the refi done, so it wasn't a killer. I started with one card that had a minimal balance and put a bunch of rehab costs on that card. It was probably something like 80% utilized by the time I was done. IIRC, my score was impacted by about 20 points, which was enough to drop me a bit under 720 at that time. This was in 2009, and I don't know what the exact breaks are now. But 680, 720 and 750 were significant break points in terms of financing.
The good thing is credit score re calculates daily. So if you max the credit card you could drop over 100 points but after it reports the next cycle with under 10% you will be back to normal. I bounce finances and payment forms all the time.
Caution - don't max credit card then plan on refi as you could have troubles ( ran into this before and its not fun)
Creditkarma.com will give you an idea of where your at and has a tool that projects what happens if you do certain things. Use it to project what way and not as actual fico. Lenders use over 10 different version of fico so the pull at BOA could be different than Wells Fargo.
Also ask yourself does it effect you mentally to walk around with 500 fico ( won't really drop that much) but to me I don't care what my score is. I'm focused on net worth and making good deals. If it's a good deal you will make it work and come out ahead.