One of the questions that I get frequently is: “how can I get low cost funding for my deals?”
While I don’t recommend borrowing money to invest in tax liens, since it could take months or even years before you get paid, it is advantageous to have a low cost source of money to borrow for purchasing tax deed properties or for foreclosing on tax liens that are at the end of the redemption period. When you go to a tax deed sale, you have to have money in hand, you don’t have time to get a loan. You don’t even get a chance to inspect the property before hand, and at many tax sales, you are expected to pay when you are awarded the bid. So it really is helpful to have a source of funding for money that you can take with you to the tax sale.
Also if you are investing in real estate, especially in bank foreclosed properties and HUD deals, even if you have a funding partner, you’ll have to come up with earnest money. Wouldn’t it be nice to be able to get that earnest money at 0% interest? Well you can, in fact you may be able to larger amounts of money at 0% interest. And next week I’ll be hosting a very informative webinar with a couple of financial experts that will show you just how it can be done! But the first step is becoming lendable. So here are some tips on how you can become lendable in 5 easy steps from my friends Ari and Mike at FundandGrow.com…
Step 1: Be Aware of Your Credit History
It is important to have activity on your credit accounts to gain lendability; maintaining existing accounts is necessary to keep an active and positive profile. Those who do not have history can accelerate their credit growth through strategically opening new credit accounts. Use your credit cards for purchases, and pay them off before the billing due date. Even one transaction once in a while can prevent seasoned accounts from being closed due to inactivity. Negative items will negatively impact your scores and lendability. Remove them by disputing any late payments, collections and other derogatory items on your report. Verify that all of your personal information is correct. Update any incorrect information on your report such as previous addresses, telephone numbers, social security number, and reported occupations to avoid future issues. All it takes is one busy cashier at a department store to enter a misspelled name or wrong social, and it will show up on your credit report. You can access a free credit report every year through http://annualcreditreport.com. For more active monitoring, you can utilize a free service like Credit Karma, or a more detailed monitoring service like Identity Guard. These minor changes and updates can help to significantly boost your credit scores, just by doing a little “housekeeping.”
Step 2: Be mindful of your balance-to-limit ratio
The industry rule of thumb for personal credit cards is never to carry a limit to balance ratio above 35%. For example, if you have a personal credit card with a $10,000 limit, your balance should not exceed $3,500. Balances over the 35% ratio will begin to drop your credit scores and lenders will focus in on the “high” debt. If you are going to make a large purchase, or carry a large balance on an account, make a big payment. Lenders like to see more than the minimum payment made on large balances, in what they call “aggressive payments.” The 35% rule does not apply to business credit, however. With a few exceptions, most business credit lenders do not report the business accounts to your personal credit report. This is so that you can utilize the business credit freely without being penalized for running your business. Lenders understand that for businesses, there will be higher balances and a larger number of transactions. If you do that with your personal accounts, the lenders see it as high utilization – and a lending risk. Lenders don’t want you to overextend yourself, and if you are maxed out on your personal accounts and applying for more credit, it will appear you are doing just that. To put it another way, make sure it doesn’t look like your ship is sinking.
Ensure payments and balances are reflected properly by paying your personal credit card bills a week before cycle/due date. Sometimes if your due date is close to the end of the month, a payment may not be applied until after monthly reporting to the credit bureaus occurs. You can also call the lenders and ask when they report to the credit bureaus, to know when you need to make your payment by. The credit lenders make your due date close to their report date, so that they can try to report the highest balance on your account to the credit bureaus. This will make it look like your debt is more inflated than it really is, and lower your credit scores. By finding out when the accounts are reported, you can sidestep this landmine and keep your debt ratios in check.
Recognize that lendability for business credit, is mostly focused on your open revolving credit accounts, not installment loans or mortgages. Even store credit accounts and “authorized user” accounts can be ignored by lenders, so it is important to have established personal credit accounts of your own. To qualify for $25k-$500k of 0% business funding, you need active open credit accounts on your report. The amount of time an account has been open is referred to as “seasoning”. It is best that your accounts have at least one year of seasoning. This shows longevity, and the ability to maintain credit over a long period of time. Both personal and business credit lenders like to see long seasoning, to show that you are a responsible credit user.
Step 3: Removing codes that hurt your credit
Most credit monitoring sites will provide an overview of what factors are impacting your credit scores. A tri-merge credit report will list “codes” that the credit bureaus list along with your credit scores to show what is making the biggest impact in the factoring of your score. The most common codes are: too many accounts with balances, recent inquiries, proportion of balances to credit limits is too high, and time since most recent account opening is too short. These codes are often not applicable, or not to the degree in which the bureaus want you to think. There are several ways to combat the codes, and maximize your lendability.
If you are an authorized user on an account with a high balance, you can request to be removed as an authorized user, and that debt will fall off of your credit report. If you have limited credit or a high overall debt-to-credit ratio, adding an authorized user card with a low balance can help to broaden your credit profile. Be mindful that anything the Primary Borrower does with this account (high balance, late payment, etc.) will affect your report. So only add yourself as an authorized user to an account of someone you trust. The bureaus make mistakes, and so do the creditors. Keep track of your payments and balances, and make sure everything is being reported correctly. The balance of an account can be reported incorrectly if you are not submitting your payments early.
Step 4: Remove recent credit inquiries
Having excessive inquiries within a 6 month time frame will hurt your scores and your lendability. Credit lenders don’t like to see potential clients seeking credit from other sources. If you’re applying for a new account, limit your credit expose prior to applying. Auto dealerships can run your credit through multiple systems to find a good interest rate. It is easier to explain auto loan inquiries to a lender, but they still don’t like to see it. Once you have your auto loan finalized, be sure to remove the inquiries. Removing recent inquiries is important to keep your scores high and your report clear. When applying for business credit, it is especially important to remove the inquiries because they are in reference to business accounts and should not be on your personal credit report. If you’ve been denied by the bureaus to remove inquiries, or simply don’t have the time to go through the dispute hassle, you can contract a professional credit repair company to dispute and remove the inquiries for you. A fraud alert may be placed on your credit file which is a very common practice, and meant for your protection. You can easily remove a fraud alert by calling each bureau and telling them you want the fraud alert lifted.
Step 5: Regular Check-Ups and Long-Term Maintenance
Finally, here are some basic tips for long-term lendability and maintaining a solid credit profile. These can help you stay lendable once you get there:
- Maintain positive payment history by paying all your bills on time (or early!) and by making higher than the minimum required payments.
- Utilize a credit monitoring service like IdentityGuard.com to keep in tune with fluctuations and changes to your credit report. Everything updates on a 30 day cycle, so once a year monitoring is not enough to stay current with your credit.
If you’d like assistance with removing negative items, bankruptcy, credit inquiries, etc. you can contact a professional credit repair company for assistance. We recommend Kaydem Credit Help, who we have worked with and referred our clients to for years with great success. On accounts with smaller limits, try to pay them off monthly. If you have a store card with a $300 limit and a $100 balance, try to pay the balance in full. Showing an aggressive payment history will help encourage lenders to increase your limits and offer promotional benefits. Some lenders will tell you exactly what you need to do to boost your limit. Capital One will review your accounts automatically at 3 months and 6 months to determine if a credit line increase is due to you. Follow the steps, and they will be upping your limits automatically. Make good with all your lenders. If you had a previous charge-off with a lender, it does not mean they will never work with you or lend to you again. If you do owe a past-due balance, try to pay it off or make a repayment plan. Lenders will see that you’ve made an effort to maintain a positive working relationship, and that can help to improve your long term lendability with that bank.
Do you want to learn how to become a savvy credit user and learn how to leverage zero interest credit for investing/business expenses?
Join me as I host a special Free webinar training with Ari and Mike on Wednesday February 15.
Register Today at http://fundandgrow.com/TaxLienLadyWebinar