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.
How I Bought, Rehabbed, Rented, Refinanced, and Repeated for 14 Rental Properties
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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 Credit.com 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.
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.
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?”
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.