Do I need perfect credit?
Today I want to discuss in detail the need for “average credit” vs the obsession over “perfect credit” as well as debunk some common credit myths. If there are questions in the comments I’ll make time to address those as well.
In a recent post, I led with “Average Credit Changed My Life” and I feel that some may be confused by my message. So I’ll offer some clarification.
The average person who takes interest in raising or improving their credit score, wants to do so for one or all of these most common reasons. 1. To make a major purchase, I.E. a home or a car.
2. To get approved for an apartment or credit card and lastly, 3. for self gratification which can include a number of reasons such as dating, employment, confidence and so on and so forth. And usually when one sets out to improve their credit they aim high! I’m talking go big or go home. Am I right? They want to be in the high 700s. And this is admirable and very much achievable when you have the proper guidance to do so and a lot of discipline to go along side it.
But. I want to shed light on another very important, yet overlooked reason one should seek to improve their score and start out slow and steady and aim for the low hanging fruit AT FIRST. Now keep in mind I am not encouraging anyone to aim low or have low standards when it comes to improving your credit Or anything else in life for that matter in anyway. But rather offering some insight or perspective if you will.
So without further ado I’d like to talk about Real Estate. And I don’t mean just getting a mortgage or qualifying for your first home loan although that’s a fantastic achievement. I’m referring to investing! In addition to Real Estate Investing I’d be remiss not to mention how entrepreneurship Also ties into credit as well. For those of you don’t know, Real Estate is and has always been one of THEE TOP WAYS to gain wealth in America. And with resources such as hard money and private money becoming more accessible and very popular as well, becoming an investor may not be as difficult as one may think. Now I won’t go into all the details about how to become a Real Estate Investor because that’s not what this article is about. But I will share a few pointers on how just increasing your score to at least the average could get your foot in the door.
For starters, to qualify for most Hard Money loans the average score needed is between a 620 & 650. Some of them may even start as low as 600. Now of course there’s other criteria that would need to be met and one should also have a wealth of knowledge when it comes to Real Estate. And I advise that you invest in such if you haven’t already. But again, not here for that. Now having a score between 600 & 650 is very attainable and can be reached with just two years of on time payment history on a car loan and maybe two other types of accounts with on time payment history as well and no negative accounts. And the average person has at least a car payment and a personal loan. See what I’m getting at here? Average credit is “average” for a reason. There are advanced strategies that can be used to excel far beyond the 600s of course but let’s stay here for a minute. Here’s why. Qualifying for a Hard Money loan can easily be a life changing event! And if the deal is right, well you could also have no out of pocket expenses. That means if you scored a Hard Money Loan for $130K on a property that you could sell for $200K you could stand to make $70K in profit less any taxes and fees you have to pay for receiving the loan. So you brought no money upfront, made almost a whopping $70K and qualified with “average credit”. Now I could be wrong, but I don’t think credit is the bigger issue here any longer. I mean the possibilities with that kind of capital are endless. Of course you should still work on increasing your score but it just got a whole lite easier. Especially if you have sound guidance and proper education.
As for Entrepreneurship I know you’re wondering, how can being an entrepreneur help my credit? Well simply owning a business does not increase your credit. But having credit (at least the average) can make you a better entrepreneur however. It’s similar to the way Hard Money in Real Estate works. There is a such thing as Business Credit. Which if you choose can be built completely separate from your personal credit. Takes longer however. But if you’re smart, and have at least an average score it can be leveraged to access business credit with much higher limits! Picking up what I’m putting down here? Credit is a long game. And the higher your score gets the harder it gets to increase unfortunately. So what I like to teach my clients is how to leverage credit to build wealth! Credit should be used as a tool to gain not a prop to buy toys.
It is commonly thought that having the perfect score is at least a 750 or higher. But if you can change your life with only a 620 which is perfect for you? There are tons of benefits that come with having high credit scores such as extremely low interest rates and no down payments so by all means don’t stop here, but START here. More lenders over the years have lessened their requirements to cater to the average score and give those who are starting out or re-building their credit a fair chance to do so. And if you ask me there is no better way to use credit than to leverage it. But ultimately it comes down to what credit is to you.
I hope this article helps. If you’re struggling to improve your credit or find good reason to do so we’d be happy to help.