Importance of Credit Scores in Real Estate Investing

As an organization that caters to rehab investors, and having funded thousands of real estate investment deals, ReCasa Financial Group can tell investors that the most important asset is their credit score. A credit score can have a lasting impact on your ability to grow your real estate business in addition to other aspects of your personal and business endeavors.  Not only can it change a loan from being approved to denied, but it can affect other aspects of successful real estate investing.

  • Credit scores can make the difference between being able to obtain a loan and getting denied. Even if your score only drops several points, it can result in higher interest rates.  As far as lenders are concerned, lower credit scores equate with higher chances of delinquency,which translates into a higher risk premium on your loans or flat denial of your application.
  • Insurance companies use credit scores to determine if they will even provide insurance to a client, the types of coverage that they will make available, and the cost.  Insurance companies have thousands of historical data points and statistical evidence that shows a correlation with “Bad or Lower” credit scores and the probability that an insurance claim will be filed.
  • Suppliers of building products and many utility companies use the credit score as the primary tool in evaluating whether they will extend credit and how much.   The alternative is to require cash payments or deposits for those products and services.

Building and growing a real estate business can be challenging and requires the management of many variables.   Managing the most important or valuable asset, the credit score, is something that you have control over.  Taking the necessary steps to preserve and increase the score will result in significant savings that can be reinvested in the business and provide access to premium loan and insurance products.

Credit Score Additional ways to a better credit score, include:

  • On time bill payments
  • Avoid needless credit inquiries
  • Keep utilizations low (below 50% of credit lines)

What other reasons can you add to the importance of your credit score in real estate investing?