Top 7 Ways To Improve Your Credit Score

By: Luke Skar -  madisonmortgageguys.com

In the modern era where we have text messaging, food delivered within an hour, online bill paying and so many other seemingly instant responses, some things still take time. Preparing a quality meal takes time. Building a strong relationship with a spouse takes time. Improving a credit score can also take time.

For some people, it may only take a few months while other people may have to work on their scores for at least a year. Regardless of your situation, the tips and strategies listed will apply to everyone and will help you improve your credit score.

Pay Every Single Bill on Time, or Early, Every Month

Please understand one thing; paying your bills on time each month is the single most important thing you can do to increase your credit scores.

Depending on the credit bureau, there are 4 or 5 main items that determine everyone’s credit score. Of those items, your history of paying bills makes up about 35% of the score. THIS IS HUGE!

Paying your bills on time shows lenders that you are responsible. It will also spare you from paying late fees whether it is a charge from a credit card or an added fee from your landlord.

Use a calendar, or a phone app, or some other organized system to make sure that you pay your bills on time every single month.

MAIN TIP: Do not pay ANY bill late!

Credit Cards: Lower Balances Are Always Better

Another big factor in calculating a credit score is the amount of credit card debt. Credit bureaus look at two things when analyzing your credit cards.

First, they look at your available credit limit. Second, they look at the existing balance on each card. From these two figures an available ratio is developed. As the ratio goes higher, so too will your credit score increase.

Here is one simple example. Suppose a person has the following credit cards, corresponding balances, and credit limits

Credit Card	Current Balance	Credit Limit
Chase Visa	$105	$1,000
MarterCard from local bank	$236	$1,500
BP MasterCard	$87	$500
Totals	$428	$3,000

From these numbers, we get the following calculation

$428/$3,000 = 14%

In other words, the person is using 14% of their available credit and they have 86% available credit. The closer that ratio is to 100%, the better the credit score will be.

Learn How To Improve Your Credit Score

In this particular example, if they had a problem with their car, or needed medical attention or some other emergency, the person would have the money necessary to handle the situation without incurring new debt. This is wise on the consumer’s part and lenders like to see this kind of money management.

MAIN TIP: Keep all credit card balances as low as possible.

Credit Cards Part 2: 1 or 2 is Better Than a Wallet Full

The previous example showed a person that utilized just three credit cards. This is much better than someone who has 5+ credit cards, all with available balances. Why? Lenders do not like to see someone that has the potential to get too far in debt in a short amount of time.

Some people have 5, 10 or more credit cards and they use many of them. This shows a lack of restraint and control. It is much better, and neater, to have only 2 or 3 cards with low rates that handle all of your transactions. A lower number of cards are easier to manage and it does not give a person the temptation to go on a huge shopping spree that could take years to payoff.

MAIN TIP: Try to limit yourself to no more than 3 credit cards.

Just Like Your Investment Portfolio, Diversity is Better When it Comes to Debt

People that have credit scores above 750 have a few things in common. First, they have credit for a few years. Second, they keep their credit balances low. Finally, they have different types of loans beyond credit cards.

Having a mix of credit card loans, installment loans, and even student loans that are all paid on time shows the lender that you are a good risk. Installment loans are usually for large purchases such as a car, boat or a home.

If you are in the process of improving your credit scores in hopes of buying a home, having an installment loan will help you greatly. It shows lenders that you can make a fixed payment, month after month, while also managing your other bills.

MAIN TIP: Having variety of debt will increase your credit score

Keep the Good Stuff Right Where it is

Too many people make the mistake of paying off old debts, such as old credit cards, and then closing the account. This is actually a bad idea.

A small part of the credit score is based on the length of time a person has had credit. If you have a couple of credit cards with a long track history of making payments on time and keeping the balance at a manageable level, it is a bad idea to close out the card.

Similarly, if you have been paying on a car or motorcycle for a long time, do not be in a hurry to pay off the balance. Continue to make the payments like clockwork each month.

An account that has a good record will help your scores. An account that has a good record and multiple years of use will have an even better impact on your score.

MAIN TIP: Keep old accounts open if you have a good payment history with them.

Stop Filling Out Credit Applications

How To Improve Your Credit Score

Too many people make the mistake of getting more credit after they are approved for a loan. For example, if someone is approved for a new credit card, they feel good about their finances and decide to apply for credit with a local furniture store. If they get approved for the new furniture, they may decide to upgrade their car. This requires yet another loan. They are surprised to learn that their credit score has dropped and the interest rate on the new car loan will be much higher. What happened?

Multiple credit inquiries in a short amount of time can really hurt your credit scores. Lenders view the various inquiries as someone that is desperate and possibly on the verge of making a bad financial choice.

If you currently have 2 or 3 credit cards along with either a car loan or a student loan, don’t apply for any more debt. Make sure the payments on your current debt are all up to date and focus on paying them all down.

In a few months of making timely payments your scores should noticeably go up.

MAIN TIP: Limit your new loans as much as possible

Develop a Sound Budget

This one tip will help you with nearly all the tips before it.

A lot of people try to buy a home without a firm handle on their finances. This causes people to go in to debt when the roof needs replacing, or the water heater breaks or any number of other repairs occurs. The new debt, usually in the form of credit cards and small, unsecured loans, becomes a burden. Now the new homeowners are faced with trying to work more hours, get a 2^nd job or risk losing their home. All of that can be avoided with a well-designed budget and a commitment to stick to a plan.

Do some research online and find a good budget model that you can follow. Maybe you are the type of person to sit down at the beginning of the month and plan all of your payments based on due dates. Or maybe you prefer to do a little bit of work during the month to keep everything in line. Several online platforms can actually help you plan a budget based on your checking account history and help you stay on track with email reminders.

Regardless of the system, you need to have a plan that covers at least the following items:

• Enough money to cover your current bills
• food, clothes and a little splurging
• retirement
• Savings for emergency
• Savings for a home purchase

This may seem a bit overwhelming, or even overkill. However, a well thought out plan can save you years of frustration and regret.

MAIN TIP: Get your budget in order and stick to the plan.

Bonus Tip: Using the Services of a Credit Repair Agency

There are a few things that cannot be erased simply through wise spending habits. The 3 main credit bureaus are all made of people doing their best to get information right, but people do make mistakes. If you have items on your credit report that are factually wrong, you can dispute it on your own or hire a credit repair agent.

A credit repair company can provide you with a recent credit report. They can spot inaccuracies that commonly appear, and, most importantly, contact the 3 main bureaus on your behalf in order to clear up any mistakes.

Please note: A credit repair company cannot erase any information on your report that is correct. For example, if you had a momentary lapse and forgot to make a credit card payment, that late payment will remain on the report.

MAIN TIP: If you have proof that there are errors on your credit report, you can contact a credit repair agent for help.

Summing Up How To Improve Your Credit Score

When reviewing all of these tips and applying them to your situation, keep one fact in mind. This is a marathon, not a sprint. It will take some time to improve your credit scores. Focus on the day-to-day activities you can do to improve your score and don’t worry everyday about the credit report. With a bit of discipline and hard work you will see that your situation is improving and you will be on the way to buying your first home!

Give Jinks Realty a Call (956) 429-3232 for Your Real Estate Needs.

Home For Sale 3420 Featherie Street Edinburg, TX 78539

Home For Sale 3420 Featherie Street Edinburg, TX 78539

Bedrooms: 3

Baths: 2

1/2 Baths: 0

Est Year Built: 2017

Est SqFt: 1509

# Stories: 1

Area: Edinburg

Subdivision: Los Lagos

County: Hidalgo

School District: Edinburg ISD

Elementary School: Cano-Gonzales

Middle School: Harwell

High School: Edinburg H.S.

 

Home For Sale 3420 Featherie Street Edinburg, TX 78539 - Beautifully modern new construction with grey neutral tone perfect for any pallet. This home features 3 bedrooms, two baths and a large two-car garage with epoxy painted floor and a tall 5-panel insulated door for a garage capable of handling a 4X4 truck. No detail has been spared. The kitchen has two pantries, glass-metal backsplash, built-in microwave, island counter for bartop eating and beautiful white cabinets. The indoor laundry room has built-in cabinets. The ample sized bedrooms have indirect lighting, ceiling fans, and large closets. The master suite sports his and her walk-in closets, large walk-in shower with beautiful tile accents. Each bathroom has exquisite quartz counters and the whole house is completed with ceramic tile.

List Price: $173,690


More Information:  JinksRealty.com

 

Real Estate Basics: How Rental Properties Make Money

By: Mike Otranto at  OtrantoRealEstate.com

 

It is no secret that a well located, reasonably priced real estate investment can effectively generate more revenue than the cost of the money used to finance it.

Many who have held on to single family homes in good areas, for 10 years or more, have built up substantial amounts of equity, and a lot of savings.

Before deciding to write this article, I did some research online, but was unable to find a concise explanation for “how a single-family rental property makes money”.

To answer this question, I think it helps to simply think of a stool with 4 legs.

1. Cash Flow
2. Amortization
3. Appreciation
4. Tax Benefits

Let’s look at each of these legs in a little more detail.

#1 Cash Flow

The main way a rental property can make money is through cash flow. Simply put, this is the difference between the rent collected and all operating expenses.

For example, let’s say you buy a house for $200,000 and rent it for $1,500 per month. If you get a great interest rate and put down a healthy down payment, your “PITI” (Principle, Interest, Taxes, and Insurance) would be about $985 per month. This leaves you with a $515 difference between the rent you collect and the monthly “PITI” payment.

Is it really that simple? Of course not! To understand how much money we're ACTUALLY making here, we need to talk about something called Net Operating Income.

What is Net Operating Income?

Net Operating Income (NOI) is the rent you collect, minus all operating expenses. The most common operating expenses are:

• Vacancy (when your property sits empty)
• Repairs (when your property needs fixing)
• Management fees (for finding/evicting tenants and paying attention to the details)
• Delinquency (when tenants pay late, or stop paying altogether)

To calculate Net Operating Income, we can multiply the monthly rent by 12 ($1,500 x 12) = $18,000; this is often referred to as Gross Scheduled Rent.

Now let’s look at the expenses.

Vacancy Allowance

Vacancy is the time in-between tenants. When one tenant moves out, the property must be “turned over” into rent-ready condition. You'll have to recognize that no rent will be collected during this period, and as such, you need to realistically budget for lost rent. To be conservative, I like to assume that my property will sit vacant for one full month out of the year.

So let's deduct one month's rent of $1,500 from our Gross Scheduled Rent above.

$18,000 – $1,500 = $16,500

Repairs

These are the day to day maintenance items such as, faucets, appliances, doors, locks, light fixtures, HVAC repair, etc. This amount can vary depending on the size and age of the property, but as an average, a decent benchmark for a newer home in good condition is about $2,000 per year.

Let’s deduct another $2,000 from our Gross Scheduled Rent.

$18,000 – $1,500 – $2,000 = $14,500

Management fees

Unlike vacancy and repairs, this is a discretionary expense. You are not required to hire a property manager, however – somebody will have to manage every property you own (even if it's YOU), so it's wise to acknowledge this very real cost.

I like to manage my own properties, so I'm not paying this money out to a third party property Management Company – but I have a lot of experience, and I do pay the price in my time.

You must decide for yourself if you want to go it alone or hire a manager. Many property management companies will charge about 10% of the gross rent ($18,000 x 10%) = $1,800.

Let’s deduct another $1,800 from the GSR.

$18,000 – $1,500 – $2,000 – $1,800 = $12,700

Delinquency

This cost is a little harder to predict when compared with vacancy and repairs. Assuming you are buying a good house in a good area of town, and your tenants are being screened properly this should not be an issue. However, even the best screening process won't make a landlord immune to the occasional delinquent tenant. Things happen – so let’s budget for 2% of the gross rent ($18,000 x 2%) = $360

Let’s knock off another $360 from our gross rent for the year.

$18,000 – $1,500 – $2,000 – $1,800 – $360 = $12,340

As you can see above, your Net Operating Income is the Gross Scheduled Rent subtracted by all operating expenses (and keep in mind, the mortgage is not part of this calculation).

Mortgage (PITI)

The Principal, Interest, Taxes and Insurance payment (or “PITI” for short) will be your greatest expense and will include the total amount of Principle, Interest, Taxes, and Insurance for the year.

Now let’s look at the numbers…

After these expenses, you will have $520 profit for the year – which isn't a lot of money.

However, it's important to recognize, if you had a management company doing all the leg work, this would be passive income that required virtually no time or work from you.

Also, assuming rent prices rise as time goes on, your gross rents will increase while your principle and interest payments remain the same.

Ending the year with $2,320 isn't a bad deal (assuming you didn't put a huge amount of your time into managing the property), but what else do you get for your investment?

#2 Amortization (Principle Pay Down)

With every monthly payment made toward your loan, a portion of that payment goes to pay down the principle amount owed on the property.

The key point to remember here is that you will be paying down your mortgage with someone else’s money (the rent you get from your tenant).

If you've ever looked at how a 30-year fixed mortgage is calculated, you'll see that with every year that goes by, you pay down progressively more principle than the previous year. This means you are building equity (the difference between the value of the property and the principle balance of the loan) each year with someone else’s money.

The specifics of how mortgages pay down is another subject – for now, all you have to remember is that every time a rent payment comes in, a progressively larger portion of your Principle & Interest payment goes toward paying down your mortgage, which effectively build up your equity with your tenant's money.

As you can see in chart 1 below, you would be paying off $3,166.56 of principle in year 1, effectively increasing your net worth (all your assets minus your liabilities) by a little over $3,000.

Again, not a lot of money—I get it!

But remember, buying and holding real estate is a long-term strategy. Let’s look at things around the 5^th year.

As you can see above, at the end of the 5^th year you have added an additional $17K to your net worth, and you have done so with the rent from your tenant.

Appreciation

The average appreciation rate for homes is heavily dependent on local factors as well as some booms and busts of the U.S. economy. Zillow gives an estimate of 3% – 5% annually, depending on local factors and Appreciation is the increase in the value of an asset over time.

In Wake County, North Carolina, where I currently invest, we have experienced some of the most competitive appreciation rates in the area. The average appreciation rate in Raleigh between 2016 and 2017 is 5%.

To avoid getting mired down in complicated economic data, I like to be conservative in assuming a good house in a good area will appreciate on average of 1% per year.

Why does the value of a home appreciate?

Home appreciation isn't always a guaranteed thing – so it helps to start with an understanding of why appreciation happens in the first place.

Fixed Supply

There is a fixed supply of land to put houses on in the United States. The increase in population gradually increases the demand – and with a fixed supply of land, this will naturally drive up the price.

Population Growth

The United States has seen a steady increase in population over time. More people means more roofs are required to house them.

In July 2015, Wake County was listed as one of the fastest growing counties in the country. According to the Wake County Demographics Study, Raleigh is growing at a rate of 14% per year. This surge in population increases the demand for housing which increases the price. Do your research on local appreciation rates in your city and state. Many counties like Wake County NC, will publish demographics data that they share with the public. Zillow.com is another good resource for average appreciation rates in local areas.

Equity

Amortization and appreciation contribute to profit by virtue of another concept called equity. Equity is defined as the difference between the value of an asset and any debt on it.

When we combine appreciation with the gradual paying down of the principle balance of the loan (amortization), we are left with the equity.

Look at the chart below.

As you can see, the amount of equity in the property 5 years after purchase, assuming a 30-year amortization schedule and 1% per year appreciation, is $47,898. As an owner of rental property, your net worth would now be almost $48,000 higher due to your investment decision.

Tax Benefits

Real estate offers some of the most generous tax advantages of the asset classes. Rental properties can be depreciated each year to offset any cash flow, and all maintenance and expenses can be deducted against any profits received.

Remember the $5,700 in mortgage interest that you paid the first year? All of it is tax deductible. So, any cash flow you made at the end of the first year, whether it be $500+ (managed by a professional company), or $2,000+ (if managed yourself) would be offset by the mortgage interest that you paid. You also have the option to deduct that mortgage interest against any personal income you made that year.

There is another benefit called depreciation. Basically, you can depreciate the fixtures of the house to offset any income that you have. Even though you don't literally have to pay out of your cash reserves to pay for this expense, the IRS will allow you to count this as an expense all the same, because they recognize that all physical assets will eventually wear out.

1031 Exchange

Remember the $47,000 in equity at year five? If you decided to sell the property, you could use a 1031 Exchange to defer paying any taxes on that money so long as you use it for another investment property. There are other criteria that must be met that we will not be addressed here.
Books have been written on this subject and this article is meant to be a brief overview. Hopefully, you can see that owning rental property, when held for the long term, can be a very profitable and low risk investment strategy.
While it can be difficult to get a single-family home to show cash flow when bought for “retail” price (the example used in this article assumes that the property was bought at a substantial discount), it is possible when using an effective marketing approach.

Give Jinks Realty a call at (956) 429-3232 for All your Real Estate needs.