How does your credit score affect real estate investing

Will bad credit keep me back?

"Bad" credit is not always as bad as you think, and even bad credit will not always prevent you from investing. Lenders cannot make money unless they make loans. Not very many people have perfect credit scores. If people with perfect credit scores were the only ones able to borrow money, then most of the mortgage companies in the United States would be out of business.

You should learn your credit score, interview different lenders to see what their requirements are, and work on ways to improve your score if necessary.

If my credit score needs improvement, how soon should I start working on improving it?

You should start working on your credit score immediately. It usually takes six months to one year of good credit practices to significantly increase your score. You will need to obtain all three credit reports, correct all mistakes, delete any old information that is no longer allowed on your report under federal law, and then focus on bringing up your score. You can do it, but it takes time.

My credit score is not going to get any better for a while. Can I still invest?

There are opportunities for you to buy property, even with a terrible credit score that prevents any traditional lender financing. They include:

seller financing;
buying tax-sale, foreclosure-sale, or demolition-ordered properties;
obtaining a cosigner or guarantor for the note;
buying options; and,
a large cash-down payment.

If a bank will not finance me, why would a seller?

Most sellers do not do credit checks, especially if you have a 10–20% down payment. Sometimes a seller will finance you with no down payment at all. This alternative is much more common than you might think, for a variety of reasons. Some sellers need to reinvest their sale proceeds in something else. They can earn (1) relatively low interest rates from a financial institution; (2) higher returns from somewhat risky stocks and bonds with unpredictable earnings; or, (3) dependable mortgage payments from a property they know will hold its value. The third choice is often the most attractive. Other sellers have properties that are overpriced for the marketplace. They might be willing to hold the financing to compensate for the higher price you are willing to pay.

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