Mark your calendar. July 1st, 2017. You’re likely to get a credit boost. You don’t need to be involved in any type of investment to want to have a good credit score. Credit will influence pretty much anything relating to finance, whether you want to rent out a property, obtain a home loan, apply for a job, get insurance, open a new credit card and much more. That’s why virtually everyone tries to improve their credit. But in the beginning of the summer, thanks to new regulations, about 12 million Americans will receive a credit boost they won’t have to work hard for.
Related: Financing a Rental Property: What’s the Best Way?
What are these regulations?
In April 2016, the average credit score of the country hit a new high at 699. And soon, a year and three months later from that all-time high, the average credit score will be even higher, at a little over 700.
The three major crediting agencies in the country, Experian, TransUnion, and Equifax came under some heat after a recent report by the Consumer Financial Protection Bureau. The report detailed issues in credit reporting by the three agencies. These issues dealt with having inaccurate and poorly updated information on consumer reports. In response, to reform and improve their credit files, the three agencies have decided to remove negative information from their records. This change will be implemented on July 1st, 2017.
Two of the most important of the “negative information” are tax liens and civil judgements. A tax lien is a lien based on paying taxes late, whether the taxes are income taxes, personal property taxes, or rental property taxes. In terms of credit reports, a civil judgement is a court decision made against a borrower due to unpaid debt or other issues in loan borrowing.
As a result of these new regulations, the credit score of 12 million Americans is expected to increase. To fully break it down, about 11 million Americans are expected to see a 20-point rise in their credit score. About 700,000 Americans could see a 20-40-point improvement in their credit score. As a result, more people will have a good credit score (at 700).
How does this help a real estate investor?
So, many Americans are in about to get a credit score gift, awesome. But how does this impact you, an ambitious real estate investor?
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Higher Credit Score = Better Mortgage Interest Rate
The higher your credit score, the more likely you will receive better interest rates on mortgages. To set things straight, in general, a good credit score is between 700 to 749 FICO score. Anything above that is excellent credit. From 650 to 699 is fair credit, 600 to 649 is poor credit, and anything below that down to 300 is bad credit. Even with bad credit, it is possible to purchase an investment property, however it will not be as easy.
Related: Young Investors Can Make it in Real Estate: Here’s How
Having a good credit score is important because it shows lenders that there is little risk in loaning to you. A good credit score is a great indicator of the possibility of an investor to pay back the loan. To reel it back to the main subject, these new regulations might make an investor more eligible for better interest rates on loans.
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More Ability to Buy an Investment Property or a Home
Buying an investment property is different than buying a home in many ways. One of these ways is that buying an investment property requires higher credit. As a matter of fact, the standard real estate loan is at a credit of 725, well above the current average and the upcoming average after the regulations. Overall, buying any kind of property will require higher credit than what is normally considered a good credit score (700-749).
With these new regulations, you may get that extra push that allows you to purchase an investment property. If you’re not quite there yet, you could purchase a home. Just as mentioned earlier, buying a property with bad or below average credit is possible, but may not be the best decision. It is better to build up your credit if you aren’t able to purchase with it yet.
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Better Tenants
A good credit score is one of the main features of good tenants. Just like a loan lender, a landlord becomes more aware of tenants’ risk based off their credit score. While screening a tenant, be sure to run a credit check.
The new regulations will improve the credit score of 12 million Americans, making them more suitable tenants. This won’t make every potential tenant more ideal. Remember, the regulation will affect 12 million Americans….out of 319 million. While the number is still large, it won’t exactly be miraculous for landlords’ wallets.
What other implications does this have for real estate investors?
The news of these regulations is great for many Americans. However, if there is one thing to learn from this, it is that crediting agencies have had mistakes in the credit reports of many people. So, check your credit reports for errors more regularly. You’re always able to get a free credit report once a year at AnnualCreditReport.com. This site is the only legit website under federal law, don’t get scammed by other sites. Especially from this point in time until the regulations actually take place (July 1st), check your credit report. It’s always better to be safe than sorry.
Having a good credit score is essential no matter the purchase. These new regulations are set to improve the credit scores of 12 million Americans, and you may be one of them. If you are of these lucky few, you’d be more eligible for mortgage loans. If a potential tenant ends up having a good credit score, then he/she is a good choice to rent to. Even once the crediting agencies improve the report keeping, be sure to check your credit report to track or any mistakes and to know if you have a good credit score.
If you have a good credit score and are ready to conduct a property search, look no further. Start your trial at Mashvisor.