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3 Reasons Your Credit is Bad (+ How to Fix it!)

by | Feb 18, 2025 | How to Fix Your Credit

Damaged credit can impact your ability to take out a loan, creating a cyclical cycle that may feel impossible to overcome. To repair your credit, it is important to understand how it became damaged in the first place. There are many reasons your credit might be in rough shape but, thankfully, there are also many ways to repair your credit into something workable. Here are three ways that your credit might be damaged and how you can go about fixing it:

  • No Credit:

Credit – “The ability of a customer to obtain goods or services before payment, based on the trust that payment will be made in the future.” (Oxford Languages)

A lack of credit prevents you from taking out a loan along with barring you from other financial opportunities. Without a credit score, it can be difficult or even impossible to purchase a home, rent a home, finance a vehicle, or take out a loan, among other things. Think of it this way; every time you rent something, the company you’re renting from is gambling on the fact that you’ll return that entity. Credit scores tell a company if you are to be trusted. A good one shows that you have a history of borrowing money and paying it back promptly. A bad credit score shows that you have either not paid back borrowed money or taken too long to pay back borrowed money. No credit score is often just as bad. It tells companies that you don’t have a history, meaning they cannot gauge if you’re trustworthy. More often than not, they will not be willing to take this uncalculated risk. 

The good news is that credit is relatively easy to build passively. If you have no credit, the first thing you should do is apply for a credit card. You’ll want to shop around for something that fits your needs to ensure you’re getting the card that will benefit you the most. Once you have a card, pick some expense that you would be paying for regardless, something small that you can put on the card and pay it off every month without issue. To achieve and maintain a good credit score, you have to make sure you’re paying off your credit card every month. Most credit card companies allow you to set up automatic payments so that no action is required on your part to ensure you don’t miss a payment. 

If you’re seeking a loan and need to build your credit quickly and passively, another easy thing you can do is find a responsible family member or friend who has a good credit history. Ask them to add you to their card. They are not going to give you their card, nor will you have access to any of their finances, but by adding you to their account you can benefit from their good credit history. This will allow you to become eligible for loans while you work on building your own credit history in the background. 

  • Utilization:

Credit Utilization Ratio – “Your credit utilization ratio is the amount of available credit you’re using… Only revolving credit accounts, such as credit cards or personal lines of credit, apply to your utilization ratio” (Discover).

Your credit limit is the amount of money you’ve been approved to put on your credit card. Your credit utilization ratio, also sometimes called credit utilization rate, is how much of that allotment you’re using. Why does this matter? Your credit utilization rate accounts for a significant portion of your credit score, typically around 30%, making it a big deal when it comes to trying to improve your score. If you’re using a larger portion of your credit limit, this could indicate that you’re overspending and may be unable to pay back what you’ve borrowed in a timely manner. On the other hand, a lower utilization rate, shows responsible borrowing habits, meaning you can be relied on to pay back what you owe. 

So, how do you calculate your credit utilization rate? All you need is some basic math:

  1. Add up your current outstanding balance on all your credit accounts. This is your total debt. 
  2. Add up your credit limits on these accounts. This is your total credit limit.
  3. Divide your total debt amount by your total credit limit amount.
  4. Multiply that amount by 100 to arrive at your credit utilization rate. 

Generally, a rate between 1% and 10% is ideal but don’t panic if your rate is higher. There are plenty of ways to improve your credit utilization rate: 

  • If you’re nearing your credit limit, it may be a good idea to ask your credit card company for a credit limit increase. If your credit limit goes up but the amount you owe on the card stays the same, your utilization goes down, which increases your credit score. This will only work if you maintain a proportionally low balance once your limit increases. It is important to keep in mind that if your credit isn’t the best initially, it is likely your increase request won’t be approved.
  • The easiest and most basic way to improve your utilization rate is to pay down your debt. Ensure you are paying off your balance on time and not spending beyond your means. To see the fastest results, you may want to be aware of the timing in which you are making payments. Lenders typically report your balance at the end of your billing cycle (usually every 30 to 45 days). Making a payment on your balance before the end of your billing cycle means the lower balance will be reported. However, if you wait until the cycle is closed, it is worth it to pay over the minimum amount required month to month to see a greater improvement in a shorter amount of time. 
  • Bad payment history, bankruptcy, and foreclosure:

If you have a bad payment history, making sure you pay your bills on time is the best way you can improve this. If you’re able to, setting up automatic payments may be the best way to ensure this happens. Set it up so that the minimum owed gets paid every month on time and, if you’re able to, pay extra in addition. If you’re unable to set up automatic payments, using a reminders app or writing your payment date on your calendar could be your best option. The only way to solve bad payment history is to change your habits to make sure you have a good payment future. 

As for bankruptcy and foreclosure, unfortunately, the only way to resolve these issues for good is time and quite a lot of it. While you may not be able to get your own credit score up in a timely enough manner, you can find a partner with good credit. Finding someone to partner with on your flips who has good credit is the only way to receive a loan if your credit is not suitable. Once your credit has improved, you can add yourself back onto those loans. 

 

Have more questions? Ready to inquire about one of our loan products? Give us a call at (866) 500 – 4500 or email us at loans@bridgewellcapital.com! We look forward to hearing from you!

Sources:

https://www.investopedia.com/terms/c/credit-utilization-rate.asp

https://www.bridgewellcapital.com/blog/

https://www.bridgewellcapital.com/wp-content/uploads/2024/07/How-to-Improve-your-Credit-Score-1.pdf

https://www.cnbc.com/select/when-did-credit-scores-start/

​​https://www.discover.com/credit-cards/card-smarts/what-is-your-credit-utilization-ratio/

Fall in love with the profit, not the property

by | Jan 4, 2024 | Fall in love with the profit, not the property

Fall in love with the profit, not the property

Building wealth is everybody’s goal in the real estate investing business. Many investors know that profit is the name of the game, but, like in everything else, things can sometimes go wrong. Here’s a tip for successfully managing your working capital in your investing projects. If you are a perfectionist, you will find this one helpful.

One of the most common mistakes in real estate investing is failing to work out a detailed rehab budget before a project begins. Take the time to define your rehab expenses and profit margin before you start the project — you will be thankful for it. Many investors, including experienced investors, omit this step and then realize they have spent more capital than expected. This ends up affecting the bottom line and leaves room for (often unpleasant) surprises.

This is a common problem in real estate investing and is usually the result of “falling in love” with the house, not the profit. Investors falling in love with the house often make multiple upgrades to the original rehab plan, and end up putting the profit into the rehab change orders. As an entrepreneur, think about profits first, but also make sure you have made the necessary improvements to make the house marketable.

Bottom line: Carve your rehab budget into stone before you start the project and stick to that number, no matter how much you fall in love with the house.

Flip Houses for Cash-Flow, but Hold a Few Cherries as Rentals to Build Long-Term Wealth

by | Jan 4, 2024 | Flip Houses for Cash-Flow, but Hold a Few Cherries as Rentals to Build Long-Term Wealth

Flip Houses for Cash-Flow, but Hold a Few Cherries as Rentals to Build Long-Term Wealth

“My favorite holding period is forever.” -Warren Buffett

There are many ways to invest in real estate. You can build your portfolio by purchasing different types of properties: apartments, single-family homes, apartment complexes, commercial buildings, office spaces, raw land, tourist locations, and even foreign properties, to name a few.

As a strategy for investment, you have 3 primary ways to make money in Real Estate Investing:

  • Use-change
  • Cash-flow
  • Appreciation.

When you buy a deferred maintenance house that can’t be financed conventionally and make the necessary repairs to bring the house up to FHA insurable condition, you have “used-changed” the property. Now it can be sold to an owner-occupant that can acquire long-term conventional financing. This, as you all know is the classic “Flip”.
However, most wealth building in investing Real Estate incorporates the other two profit centres: cash flow and appreciation. When you flip a house, you only take advantage of only one profit centre: “use change”. When you hold property you cash in on cash-flow and long-term appreciation. Here’s how.

Profit from Inflation

It is often said that landlords grow rich in their sleep because cash flow and equity increase over time. The average rate of inflation in the US for the past 50 years has been 4.1% annually. Therefore, if your rental income and the value of your investment property increase at this rate, your cash flow and equity will increase significantly over time. If there is a lien on the property you can still see a positive cash flow because inflation usually drives rental income up and loan payments are typically fixed.

rental-income-vs-time

Cash flow increases over time. Rental income goes up faster than costs because loan payments are typically fixed.

On the other hand, as equity increases over time, appreciation and loan payoff build equity.

property-value-vs-loan-balance-graph

Equity increases over time. Appreciation and loan payoff build equity.

In sum, inflation will yield profits as equity and rental income increases over time. Now think how much wealth you can build 10 years from now if you hold a few cherries as a rental; think how much wealth you can build 20 years from now… This is why Warren Buffett’s favourite holding period is forever.

The bottom line is: Flipping houses is a great source of steady cash flow for paying bills but now and then hold back a “cherry” as a rental property to add long-term wealth building to your Real Estate investing strategy.

Many “Shots on Goal” is How to Score in Real Estate Investing

by | Jan 4, 2024 | Many “Shots on Goal” is How to Score in Real Estate Investing

Many “Shots on Goal” is How to Score in Real Estate Investing

If you are looking into investing in real estate, you are likely trying to get the best deals in the least amount of time and effort. While there are guidelines to make a smart buying decision, “many shots on goal” is a key component to consistently making good buys.

The more opportunities you have, the more likely you will find a great bargain. Professional wholesale real estate buyers make 3 or more offers per day, 5 days a week, and hope to make 3 good buys a month. How many offers per day are you making? Whatever the number, it will be directly proportional to the number of great buys you make each month.

How to Make Your Offers More Effective

Although quantity is king, there are several things to keep in mind to make your offers more effective:

  • Asking price: should be reasonable and ideally below other comparable properties in the market. By the way, if you feel too confident about the amount you offered, you probably offered too much. Make sure your offer is “just enough” to be considered.
  • Repairs: Estimating repair costs is necessary before submitting an offer. This will also come in handy if you need to apply for private money or conventional financing.
  • Sellers: Having a motivated seller who is willing to work with you (if you need to ask for an extension to close the property, for example) is a valuable advantage.
  • Liens: Take the time to search for any liens the property may have. You can find this in public records or directly with the seller. Any liens found can be a game changer for your financing options and your profit margin.

At the end of the day, the only bad offer is the one that is never made. “Many shots on goal” is the key component to sustainable success in real estate investing. You will be surprised how many goals you can score.

One Simple Tip to Make Your Rental Property Investments More Efficient

by | Jan 4, 2024 | One Simple Tip to Make Your Rental Property Investments More Efficient

One Simple Tip to Make Your Rental Property Investments More Efficient

You have probably heard the old adage: “There are three things that matter in an investment property: location, location, location”. I can’t tell you how important this is for a healthy and manageable investment portfolio.

In this post, we are going to take a look at how location affects residential real estate investing.

You want to be buying houses in a very specific area, especially when you are buying, fixing and renting. As a hard money lender, I talk to real estate investors every day that are relatively new to the industry and are looking for a rental property loan. Sometimes they tell me about a house they are looking at in Orlando, or another one that they have in Tampa, and another one in Jacksonville… If this sounds like you, it’s time to re-evaluate your strategy. Here’s why…

The first rule about renting investment properties and building a nice portfolio is to look for houses in the same location. In my view, if you can’t stand in the center of where the houses are and, figuratively speaking, throw a rock and hit every house, you have the wrong plan. A rental house in Orlando, another one in Tampa, and another one in Jacksonville is a recipe for disaster.

Why should you buy rental houses in the same location?

There are 2 reasons to buy rental houses within close proximity:

  • To know what you are buying – Buying properties within the same neighbourhood will help you understand the challenges and advantages of a specific investment property (appreciation, crime rate, etc).
  • To create synergy between the properties – Houses within the same area are usually of the same kind. This can be beneficial in many cases. For example, you can hire a local handyman and he will know exactly how to fix maintenance issues in that kind of house. This is much more efficient than sending a handyman to a house in Orlando that was built in 1963 and another handyman to a house that was built in 2001 in Tampa, or Jacksonville.