How to Improve Your FICO Score

If you want to get accepted for a real estate loan, you’ll have to check several boxes off the list. A high FICO (Fair Isaac Corporation) score is one of them. Introduced over 30 years ago, the FICO scoring model has undergone many modifications since. Today, it’s a robust, reliable, and accurate representation of your creditworthiness.

Compared to bank loans, investment property loans come with fewer restrictions and rules. While you don’t have to jump through all the hoops a bank will place in your path, you still have to prove good financial standing, rental planning and acumen, and a high sense of responsibility.

FICO scores are calculated after considering five critical pieces of information on your credit report:

Payment History
Accounts Owed
Length of Credit History
New Credit
Credit Mix

The higher your score, the more appealing you’ll appear to lenders. 800+ is considered an excellent FICO score. If you fall between 740 and 799, you have a very good FICO score. 670–739 is considered good, 580–669 is considered fair, and anything below 579 is considered poor.

If you’re interested in applying for a real estate loan, lenders will inquire into your FICO score. At InstaLend, our minimum FICO is set at 620 for fix and flip loans, 650 for bridge loans and new construction loans, and 680 for rental loans.

If your score doesn’t meet our requirements, it’s time to rework it until you can confidently apply for a loan. In this blog, we’ll take a closer look at five ways to improve your FICO score. Keep reading, take notes, and feel free to ask us questions toward the end.

1. Make Timely Payments

a businesswoman making timely bill payments on her laptop

Good financial responsibility isn’t just important; it’s imperative. If you fail to pay your bills on time, your credit score will bear the brunt of your tardiness. Late payments will lower your FICO score and hurt your chances of successfully taking out a real estate loan with good terms.

It doesn’t matter if you’re a day late or 30 days late; late is late, and lenders don’t compromise in this department. Delayed or insufficient loan repayments will ultimately affect their business down the road. Needless to say, lenders want your payment history to be pristine, or as close to pristine as possible.

Set up payment reminders or auto payments for your bills to reduce the risk of late payments or default. If you’re having trouble making payments because of a lack of funds, consult credit counselors who can help you get back on track. The sooner you start working on this aspect of your FICO score, the better.

2.Get Rid of Excess Debt

a real estate investor exploring debt repayment options on their laptop

If you owe a lot of debt, start slashing most of it. Credit utilization makes up an astounding 30% of the FICO score. As you lower your debt-to-available-credit ratio, your FICO score will start shaping up.

Instead of simply moving debt around, pay it off. This is easier said than done. Start off slow and develop good habits until the results begin to crystallize. Slowly pay off credit card debt, starting with high-interest cards. The other accounts should have minimum payments.

Avoid setting up new credit cards to increase your credit; this strategy can backfire. If you’re struggling to keep your spending under control, work with experts who can keep you on track. Keeping oneself accountable is often a rather difficult task. When professionals keep you in check, you’ll stick to the plan.

3. Avoid Closing Your Credit Cards

Many people make the mistake of hastily closing their credit cards. While this may sound like a good idea on paper, it’ll actually end up increasing your credit utilization and negatively impacting your credit history.

This should only be done if you’re paying an annual fee and getting little to no points and rewards. In this case, consider closing the card. Otherwise, keep your cards open and gradually develop good financial habits.

4.Identify Credit Report Errors

a woman identifying mistakes on her credit report

Credit reports aren’t foolproof. Keep this in mind. Always check your credit history and take note of anything that appears odd. It’s possible that a creditor noted that you missed a payment when that never happened in reality.

Mistakes happen all the time; never assume that an official document is accurate by default. Once you’ve disputed credit errors, the relevant credit bureau will take roughly 30 days to look into the error and respond.

Pro tip:Soft inquiries are made when you check your credit yourself, authorize an employer to check it, and so on. These inquiries will not affect your credit score.

However, hard inquiries will have quite an impact on your FICO score. This check is performed when a lender pulls your credit report because you’ve applied for a loan, new credit, and so on. Banks aren’t too fond of this. Hard checks indicate that you need money because of financial problems; there’s an implication of risk.

If you want to improve your FICO score, avoid applying for new credit for the time being.

5. Take Out a Loan

If you’re in a bind and nothing seems to be working out, consider taking out a loan to pay off debt and systematically improve your credit standing. This should only be done if you have a plan in place and can confidently repay the loan in the finalized timeframe. If you have doubts, hold off until you’re sure that repayment will not be an issue.

A loan can help you make smart investments and maximize your revenue. However, as we mentioned earlier, this will only be possible when you make smart calls, not rash decisions. Play to your strengths. If you need help, don’t hesitate to consult experienced experts who can guide you.

If your FICO score is in good standing, you can confidently apply for a real estateloan. At InstaLend, we’re committed to helping real estate investors grow their businesses. As a private lending agency, we provide loan commitments the same day and close within a matter of days. Explore our loan options:

Fix & Flip Loan
Single-Family Rental Loan
Multi-Family Bridge Loan
New Construction Loan
Multi-Family Term Loan

Contact ourexperts to get started. By providing flexible terms, fast approval and funding, and peace of mind, we help you enjoy a hassle-free loan. You don’t have to worry about upfront processing fees or prepayment penalties; our loan programs are made with your ease in mind. Let’s begin.