It’s not a myth— your credit score is important. Whether your goal is to buy a personal home or to invest in real estate, the first four loans of a year will be based primarily on your credit score. It is a measure that indicates how trustworthy you are to lenders.
Here’s a quick breakdown of the credit score spectrum:
500- Needs Work
The score is made up of 5 components. Payment history accounts for 35%, outstanding credit balance holds 30%, length of credit history is 15%, and both the type of credit and credit inquiries account for 10% each. Unfortunately, 79% of credit reports contain mistakes of some kind. Here are some tips that will help you stay up to speed on maintaining an accurate score.
4 Tips to Protect Your Credit Score
- Frequently Inspect Your Report: Scan your report regularly to ensure that all of the financial information is up to date and accurate. Most of the free reports don’t include the actual credit score. You can pay for a copy of your credit report and score from each of the following agencies: Experian, TransUnion, and Equifax.
2. Check Open and Closed Accounts: Another important aspect to note on your report is the accuracy of your closed and open accounts. As many as 30% of reports incorrectly list closed accounts as open. This can negatively impact your credit score!
3. Keep Your Credit Card Balances NO MORE than 50% of Available Credit: Know the limits that you have on your card and try not to touch them. Really, the best case scenario is to keep your balance no more than 33% of whatever your available credit is. So, if you have a $10K limit, it’s best not to owe more than $3,300 at any given time.
4. Form a Corporation: This is a real nugget for investors. When you form a corporation, you can have your autos and lines of credit put in the corporation’s name— not your own. When you get loans, be clear that you do not want them reported on your personal credit at all.
Understanding credit is a key tool in the wealth-building process. If you want to learn more about the ins and outs of credit, I recommend reading my book Money Mastery. Or, if you’re a real estate investor with questions about how you can best leverage credit, consider signing up for our virtual upcoming Real Estate Workshop April 23-25. For a limited time only, you can get $50 off when you use the code RELIVE50 at checkout. Click here to register.