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Improving Your Credit Score Part II

Let's learn more about how to improve your credit score so you can qualify for a better mortgage loan - with a lower interest rate - to finance that investment property purchase.

Again, there is no quick fix to improve your credit score, there's no fast and easy way to raise your credit score, it takes some time. The number one thing you can do is pay off debt with high interest rates and move debt to lower interest rates, if needed. Yes, sometimes those balance transfer offers, with 0% for a period of time are worth it, even if you have to pay 3% on the total debt you transfer.

Unless you have extra money to pay off debts entirely, you'll have to move debts around to lower rates or call your credit card companies to see how they can work with you. And yes, if you call them they will try to help you pay off the debt.

The bottom line is this: If you want to own an investment property you’ll need money for a down payment in addition to a separate cash reserve to pay for unforeseen costs. This will undoubtedly be a large sum of money, so you’ll need to cut costs wherever you can. Besides, if you make a substantial down payment, you’ll gain more leverage with interest rates and loan terms. You have to be smart and patient in order to save money and ultimately make money through buying real estate.

The next key is:  Paying your bills on time and paying off all debt in full. This includes everything from school loans to credit cards that charge high interest rates and exorbitantly high late charge fees. As you chip away at your credit card debt, you can request lower interest rates, or ask the company to waive an annual fee. Having a good track record of payments will certainly give you some leverage—if you‘re a good customer who makes payments on time, the company will probably be willing to work with you.

When negotiating with creditors, you have to be tough. If the aforementioned advice doesn’t inspire the credit card companies to drop the annual fee or lower your interest rate, then tell them you want to close your account. They’ll suddenly change their stance, because they don’t want to lose you as a customer, especially if you’ve already established a solid history of timely payments. Once they realize you mean business, they’ll drop the interest rate or annual fee and most likely raise your credit limit if you’d like. Besides, it’s always good to have extra credit, just in case there’s an investment opportunity you can’t pass up and demands a little extra cash. 

It's not wise to use your credit card to fund an investment though, since the interest rates are usually so high, more of an emergency type situation where there's a deal too good to pass up and you can pay off the card right away.

Also, don’t wait until the end of the month to make a payment. Do it as soon as you can.  This can be done easily and quickly with the use of the online banking and automated payments. But don’t stop there. Check on your balance on a weekly basis so that it never gets out of control. Simply take a few minutes out of your day to monitor your bills.  This is a good habit to have in general, and is even more important when you own multiple properties.

An often overlooked but very harmful situation is if you apply for several credit cards and/or loans within a fairly short period of time, say a year. Don’t do this. You need to build a solid history of good credit with only one or two credit cards. Creditors will think you’re unstable and unreliable, and that you’ve been denied credit cards due to bad credit.

If you have an outstanding debt, such as a hospital bill incurred from an accident, most companies will work with you if you establish a time when you pay a certain amount on a monthly basis. The key is to contact them and explain your situation rather than run away from your bills. Some companies will even reduce the amount you owe.

Once you establish the habits that help you attain good credit, you have to maintain these habits. Just because you have good credit now doesn’t mean you’ll be able to keep it in the future if you slack off. Be diligent, attentive, and ahead of the game at all times. Eventually, this will be the daily routine you subconsciously perform. It has been said that man is a creature of habit. Let’s just make sure those habits are healthy.

SET GOALS: Set a goal of eliminating one credit card, or reducing the balance of one card to zero in three months. If you have to, get a second job or take more overtime until you pay off one credit card.

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