If you're in the market for real estate, what do you do first? Do you: a) find a really great property and head to the bank to take out a loan, or b) get approved for the best loan possible and then look for an appropriate property? If you're like most people you probably said "a."
But according to real estate investing insider F. Michael Johnson, you're putting the cart before the horse. Whether you're looking for an investment property or a home to live in, it pays to take care of financing issues first. And one of those issues-a critical one-is your credit score.
"Most people probably don't even think of their credit score until they find a property they want and are desperate to get a loan," says Johnson, author of Borrow Your Way to Wealth: How to start with nearly nothing and end up rich in real estate! (Acacia Publishing, 2004). "But if you wait until then, you've lost your leverage. I strongly advise any potential real estate buyer to get his or her financial ducks in a row now-long before they start looking at a house to live in or a duplex to rent out."
In days gone by, most credit decisions were made based upon an underwriter's ability to navigate through your credit report, explains Johnson. The trouble with this process was that subjectivity could have far too much to do with the underwriter's decision to bring much comfort to the lending industry overall. Thus, with necessity once again being the mother of invention, a tool called credit scoring was created.
Today, the three big credit bureaus' reports now come with a credit score. And just how important is this score, you may ask? Well, for starters, scores are being used to determine your creditworthiness for most consumer credit purchases. They are now as a matter of course being widely used to determine your insurance rates and even whether you can qualify to rent an apartment.
The trouble with credit scoring is that consumers, for the most part, have no idea how credit scores are calculated or, worse than that, how to improve their score. Johnson explains both, below:
The Basics: How to Check-and Correct-Your Credit Score
STEP ONE: Obtain a copy of your credit report from each of the big three credit bureaus. Presently, they are available for approximately $8 each. Credit reports can be ordered either online or by contacting each bureau individually at the addresses below:
Equifax:
P.O. Box 740241
Atlanta, Georgia 3074-0241
1-800-685-1111
Experien: (formerly TRW)
P.O. Box 2104
Allen, Texas 75013-2104
1-888-397-3742
Transunion:
P.O. Box 34012
Fullerton, California 92634