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How Good Credit Affects Your Investment Opportunities

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If you've used a credit card and applied for loans in the past, you should know how important your credit score can be. If your credit score is too low, it's much more difficult to gain approval for any type of loan. However, good credit isn't just about getting loans or credit cards. It can also significantly impact your investment opportunities. If you have little or no investment experience, you should understand what your credit score means for any future investments you make.

Importance of Credit Ratings

Your credit rating is used by lenders to estimate how risky it would be to lend money to you. If you have a high credit rating, you're more likely to repay your debts. On the other hand, a bad credit rating makes it more likely that you'll find it difficult to make your payments on time. Lenders don't want to be in a situation where they give you money only to find that you can't pay it back.

Debt Reduces Your Capital for Investing

While a bad credit score makes it more challenging to be make real estate investments, your ability to invest is also hurt by the amount of debt you have. Debt automatically sucks away money that could otherwise be used for investing. From loans to credit cards, there are numerous ways that your debt can increase.

The issue with having too much debt is that it becomes much more challenging for you to set aside some money every month to put towards investments. While it's natural to have a mortgage and auto loan to pay off, credit card debt is the main issue that can stifle your ability to invest.

If you spend $350 every month paying off credit card debt, this is $350 that you can't put towards investing. After accounting for your other debt and the payments you make for monthly essentials, there may not anything left to invest. You can improve your financial health and give yourself more investment opportunities by paying off some of the debt you owe.

Poor Credit Limits Investment Options

If you currently have poor credit, you'll find that your options for investing in real estate are rather limited. With poor credit, it's also challenging to start a business or even open certain brokerage accounts.

If you're in this situation, there are ways around poor credit issues. For example, you could invest in a real estate investment trust or apply for a hard money loan to invest in real estate. However, the best option is to improve your credit score, which will take away the previous limitations and allow you to avoid taking on riskier prospects just to make a standard investment.

If you're interested in making real estate investments that can help you diversify your portfolio, having bad credit means that it will be more difficult for you to gain approval for a government-backed or conventional loan.

Following the financial crisis that occurred in 2007, lending institutions adopted much stricter standards for providing loans to borrowers with poor credit. Today, you'll need to have a good credit score and a low debt-to-income ratio before lenders will consider giving you a loan. While you can bypass this problem altogether by purchasing the property with cash, this isn't the best option when investing in real estate.

What Is a Bad Credit Score?

Now that you know why good credit is important for your investments, you should know what constitutes a good or bad credit score. There are two credit scores that are widely used across the U.S., which include VantageScore and FICO Score. Both types of credit scores use a range that extends from 300-850. Having a higher credit score is invariably better for your investment prospects than having a lower one.

When using the FICO scoring model, a bad score is anything that ranges from 300-579. However, you don't have a good credit score until you're at 670 or above. If you have an exceptional score of at least 800, you shouldn't encounter any investment limitations.

As for VantageScore, they obtain data from the various consumer credit reports to give you a credit score. A bad credit score is anything from 300-600. Even when you're in the range of 601-660, this is only viewed as a fair credit score. You'll need a score of 661 or higher to have a good score. You'll be in excellent shape between 781-850.

How to Improve Your Credit Score

If you've recently taken a hard look at your financial health and discovered that your credit score is lower than you'd like it to be when you're making investments, you don't need to worry. While you may need to delay your investment strategy for a short time, there are some easy steps you can take to start improving your credit score. For example, you can begin slowly paying off the debt you owe, which will improve your credit standing considerably.

It's also highly recommended that you look into credit counseling. By obtaining credit counseling from Attentive Investments, you'll receive personalized guidance that can help you improve your credit score, which will invariably enhance your investment prospects and provide a clear roadmap forward.

When you proactively manage your credit, it's possible to obtain broader financial success, which includes a more diversified and profitable investment portfolio. Once you start utilizing credit management, you should notice that your credit score is increasing and you have less debt to pay off. Being a successful investor means properly managing every facet of your finances. Over time, you should be able to develop strategies that allow you to reduce your spending, increase your investments, and diversify your portfolio.


If you realize that you need to improve your credit situation, set a clear target for your credit score that you can work towards. While a bad credit score places limits on the types of investments you can make, it doesn't take much to increase your opportunities and remove these limitations. Call Attentive Investments today to schedule your first credit counseling session.

 

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Friday, 01 March 2024

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