Getting the Foundation Right:  Starting Your Real Estate Business, Part Three

Setting Goals

What gets you out of the bed each day? Do you have short- and long-term goals? Is the fact that you will be out on the streets if you don’t make next month’s rent or mortgage payment what motivates you? I say this to prove a point. Some people are pleasure motivated and some people are pain motivated. I think it’s important to find out which type you are. If you are pain motivated, I suggest that you find something to excite you. Even if your goal is not for you but for a family member, it can still motivate you. Setting goals is very simple. Anyone can do it.

Here’s what you have to do to set a goal:

Decide what you want and write it down.

That’s it! Just the fact that you wrote it down increases your chances of obtaining your goal. You also need to set a deadline for achieving your goal. A goal without a deadline is just a conversation. This is worth repeating: A goal without a deadline is just a conversation.

You need to consider balance in your life when goal setting. You should have different types of goals. You need financial, physical, personal development, family, and spiritual goals. Can you see that if you set goals in all of these areas you will have balance in your life?

Once you have your goals set, you need to determine the activities required to achieve your goals. Just remember, do not confuse activity with productivity. You must produce to achieve your goals.

How do you apply this to your real estate investing business? You need to set your investing goals to include cash, cash flow, and equity. Each time you purchase a home, you need to run the numbers on these 3 items for the property:

  • How much cash can you get out in the refinance?
  • What will the cash flow be?
  • How much will your net worth increase after you purchase the property?

You could even use a spreadsheet to keep track. You also will need to keep track of your return on the equity in your property. For example, if you have $20,000 equity in a property and your cash flow is break even, what is your return on equity? Zero! This is a property you should sell and invest the equity somewhere else to get a return on your money.

The last thing I want to do is give you some questions to ask yourself before you set your goals.

  1. Am I reading the books that will take me where I want to be?
  2. Who am I around and what are they doing to me?
  3. Do I have a coach or mentor I can call on?
  4. How do I feel physically?
  5. If I get what I want, will I be happy with what I have?

These questions sound simple, but you need to ask them of yourself. After all, you don’t want to work your entire career to find that you have been going in the wrong direction.

Getting Started as a Real Estate Entrepreneur

Whether you are new to real estate or have reached a “plateau”, the following will help “jump-start” your real estate investing career.

Surround Yourself with Like-minded People

“Creative” real estate is non-traditional, which means that most people don’t do it this way. Thus, most people you speak with will tell you it won’t work. If you tell them you heard it in a seminar or a course you bought from a late-night television “guru”, they will laugh and call you “gullible”. Attorneys and other professionals will denounce it because it sounds unusual. Keep in mind that these people either are threatened by their own lack of success or are looking to protect their own butts.

The first thing you should do its join a local real estate association. These associations will help you keep your thoughts in the right place and prove to your subconscious mind that it really does work. If you cannot find a group, then form a group.

Form Your Power Team

Don’t wait until you have a deal in place to find your team. You need to find the following members of your team:

  • Attorney – Preferably one who does real estate deals for himself and others.
  • Title or Escrow Company – Stay away from the big-name companies; find one that caters to investors. Make sure they understand double closings, land contract, etc.
  • Insurance Agent – One who understands land contracts, property owners, etc.
  • CPA – One who is aggressive and owns real estate.
  • Contractor – One who will give you free estimates and knows how to “cut corners” in the right places.
  • Mortgage Broker – One who is savvy, creative, and experienced with real estate investors.
  • Partner – In case you need it for money or particular experience.
  • Mentor – Someone you can call to talk through and smooth out the rough spots.

Don’t Talk to Unmotivated Sellers

This is the biggest mistake I see beginning investors make. They waste time talking to sellers who are marginally motivated. Even worse, they drive by houses and look for comps without even talking to the sellers first! Never visit a house before speaking with the seller over the phone. Be persistent.

Anyone who has ever been in sales will tell you that few deals are ever made on the first try. In fact, most deals are made after contacting a prospect for the fourth or fifth time.

Maintain a follow-up system similar to a salesperson. Keep a record of contacts, items discussed, and schedule of follow-up contacts.

Keep Educated

“If you think education is expensive, try ignorance.”

I am not sure who first said it, but I give him credit. You can lose more money with a mistake than you can in learning how to avoid one. Even if you have been at this business for years, you need to keep up with current trends and laws. As an attorney, I have to go to seminars every year. Some are boring, but I always learn something that either makes me more income or prevents a lawsuit.

Have a Plan

Don’t just wander around looking for deals. Have a plan. Make X number of phone calls a week. Spend $X a month on advertising. Make X number of offers per week. Pass out X number of business cards each day. Eventually, you start to get “lucky”. I mean that facetiously because luck always happens to those who are at the right place at the right time. If you plan and persist, you get lucky. Luck is when preparation meets opportunity.

Treat This as a Business

Real estate lures people because of the quick buck that it promises. Don’t hold your breath; you won’t get rich quick. An “overnight sensation” usually takes about 5 years. I would guess that 90% of the people who take a seminar on real estate investing quit after 3 months. This is a business like any other. It takes months, even years to cultivate customers and to create a life of its own. You need to treat it like any other business. Give it time, effort, attention, and professionalism, and it will flourish. Be patient.

The key to being successful as a real estate investor is PLANNING. Successful investors always have a game plan. Educated investors only know how to do deals. They don’t know why they are doing deals or where they are going; they just aimlessly pursue opportunities.

Be successful – get your foundation right.



Getting the Foundation Right: Starting Your Real Estate Business

Part Two

Following a Game Plan for Successful Investing in Real Estate

It is important to develop some ideas on using real estate to become debt free and build your cash reserves. Many investors start out in real estate thinking that they have to “have money to make money”. That is not the case at all. You will need one of two things: either cash or good credit. And remember, it doesn’t have to be your cash or credit. It is okay to start out with other investors until you can make it on your own. It is better to share the profits and have some of something than have all of nothing.

The goal is to buy only when you can be paid and still cash flow the property. For example, you find a property that has an after-repaired value (ARV) of $100,000. Because the property needs $20,000 in work, you can buy it for $50,000. Now you will be in the property at 70% of value once the work is completed. Whether you paid cash, borrowed from relatives, or got a hard-money loan for purchase and rehab makes no difference. Once you have a $100,000 property, you can refinance at 80% loan to value (LTV) and, after closing costs, pull out about $7,000 to $8,000 in tax-free cash. Yes, you do not pay taxes on borrowed money. Just remember that it is still borrowed money and has to be paid back, even if tenants are paying it back. You should not refinance over 80% LTV. This way, you still have some equity for your financial statement and the property should cash flow with no problem.

Now, what do you do with the cash-out from the refinance that you just received? You do not buy a new car, go to Las Vegas, or anything like that. You simply pay off a credit card, installment loan, your car, your equity line, etc. You can buy real estate and get cash to pay off your personal bills and increase your cash flow from the rents at the same time. If the property you just bought and refinanced has a $200 cash flow and you used the cash out to pay off your car that has a $300 payment, how much did you really increase your cash flow? $500!

Every time you buy a property, think about what bill you will be able to pay off. Once you have all of your consumer debt paid off, you start paying off the home you live in. Once you pay off your home, you go to your banker and get a line of credit on your home to use to buy and rehab properties. Then, you simply refinance once the work is completed and pay off the line of credit.

It is much easier to negotiate with a seller when you can simply write a check to purchase the property. When you ask a seller the least he will take if he can have a check by Friday, you can back it up. Sure, it may take some time to get to this point, but once you have become debt free (with the exception of rental property, of course), it opens up many options for you to do things that you have never been able to do. And you can have peace of mind.

What gives some people the drive and determination to succeed while others fail? Many investors and entrepreneurs have followed one of the following courses, from overnight success to plodding, sit-on your-butt-and-do-nothing failure. Some people get off to a great start and then fade away, and some piddle around and never seem to get anywhere. Some of those people make a very successful living, and some of those people even become super wealthy.

Is there a magic formula for success? Unfortunately, there is no more magic in being successful than there is in anything else worthwhile in life.

The most common roadblocks that can detour an entrepreneur’s rise to success are discussed below.


Roadblock 1. Lack of Focus

Focus is concentrating only on the work you must do to succeed in your business, avoiding all distractions, and not being sidetracked by every “great idea” that pops up. It’s not easy. The world we live in is filled with things that beg for our attention. We live in the “Information Age”. That’s great, except this bombardment of information makes it hard for most of us to sift through the junk and come up with the good stuff. That’s why most of us have problems staying focused, even when we’re trying to concentrate on something we know will make us wealthy.

There are a million ways to make a million bucks, and every day a new avenue for riches is presented to us. Nevertheless, I’ve learned through trial and error (lots of error) that the only way to make something work is to filter out everything else and stick with what I know works. I get frustrated when I see people with tremendous potential for this business get off track with a so-called “get-rich-quick” scheme (and there are a lot of those schemes – just watch a little late-night television). If you dabble in one business, jump to another, then try something else completely different, you’re not likely to be successful at any of it. Focus takes work, determination, and discipline. Sometimes it hurts, such as when you have to say no to your family and watching sports on television so you can go out and make them five or ten thousand dollars. Believe me, when your increased income starts showing up in trips to Disneyworld, new clothes, and cars, your spouse and kids won’t have a problem with it.

Roadblock 2. Getting Into the Rental Business Before Your Cash Flow Needs Are Met

When I first got started with real estate, I decided to buy all the rental property I could. I figured that with many tenants in a lot of houses, the cash would just fall in to my lap every month, right? Wrong. It was the biggest single mistake I made for a very simple reason: I just wasn’t ready. Like yours truly, many beginning real estate investors get in the rental business because they think it’s some kind of quick path to wealth. But, it’s not. It’s slow and long-term.

Soon after I built my “rental empire” in the 1980s, I discovered that my daily cash flow needs were not being met. I had a huge amount of capital tied up in equity and a thin stream of income. And, I had a family to feed! Don’t get me wrong; I have nothing against rental property as an investment. However, if you don’t have a cash cushion built up, you’d better get really good at buying properties dirt cheap. Even when you do, you’ll discover a million ways to spend down your cash flow.

Busted toilets, leaky roofs, paint, and carpet all eat great big holes in your wallet. Even if you do have enough ready cash to get into the rental game, you need to know what you’re doing. For instance, do you know about “professional tenants” who make their living by “getting over” on property owners? These creeps know the landlord-tenant code and eviction laws inside out, and they can make your life a living hell before you finally get them out of your houses. If you want to become a professional property owner, you’d better understand how the game is played and get the education necessary to deal with all the potential problems.

Bottom line: Make some fast cash by quick-turning a few houses before you get yourself mired down with rentals. Get into some low risk, high-return deals before you start piling up equity and dealing with tenants. Then, when you do become a “Super Landlord,” your chances of retiring on your rental income will be much better.

Roadblock 3. Listening to Poor Advice

This is something you probably already know. As you go through life, there never will be a shortage of people who want to give you advice. Your parents, your spouse, friends, in-laws, kids: they all have opinions about what you’re doing and what they think you should be doing. Very often, the value of their advice is worth exactly what you paid for it – nothing!

I’m not saying these do-gooders aren’t honest, intelligent, and well intentioned. However, you must ask yourself, are these folks qualified to give you advice? Have they had any experience in what you’re doing? It seems to be human nature for people to offer advice on subjects they know nothing about.

What baffles me is how often the recipients of this so-called wisdom will listen to it and even act upon it without ever questioning the credentials of those giving it. Through many painful experiences, I’ve learned that when you take advice from people who don’t know any more about the subject matter than you do, the quality of that advice is, at best, suspect. Very often, listening to unqualified advice can have a negative impact on your focus (see Roadblock 1 above).

So, to whom should you listen? I believe in taking advice only from people who are:

  • Qualified experts in their field and
  • Making a whole lot more money than I am.

And, those people are out there.

Don’t be afraid to seek help; just be careful where you go to get it, even if you have to pay for it. I think you’ll find that if you pay for the opinion of a bona fide expert, the advice you receive will be more than worth the price.

Roadblock 4. Listening to Negative Thinkers and “Dead Heads”

Nothing kills the entrepreneurial spirit like negativity. With all the challenges you face in business, you need to keep a positive, upbeat, enthusiastic attitude about what you’re doing. It’s the only way you’ll be able to perform at your best. Negative thinkers and “Dead Heads” will suck the energy out of you and bring you down to their own miserable level. (Generally, these people have failed in their own lives and enjoy trying to make failures out of those around them.) They’ll make you question yourself, doubt what you’re doing, and, if you listen to them, eventually give up entirely.

I’m sure when you first told friends and family you were going to be a real estate entrepreneur, you heard things like,

“You really believe that stuff they sell on TV?”


“You can’t make money in real estate, the market’s too slow”.

or maybe

“There’s not enough appreciation to make a profit and didn’t they change the tax laws or something?”

Meanwhile, they’re working three jobs and won’t answer the phone at night for fear it will be a bill collector. I don’t think your true friends or your family intentionally would hurt you or bring you down. Usually, they think they have your best interests at heart. However, in the process of “trying to make you see all sides” or “just giving you a few facts about the real world”, they’re pouring buckets of ice water on the fire you need to keep burning in order to keep succeeding. It may be impossible to cut yourself off completely from these people. I suggest you simply tell them in firm, no-nonsense terms that you appreciate their interest but have no use for their negative, sarcastic, or skeptical comments.

One of the best ways to avoid negativity is to seek out positive and supportive people. Find successful people or a group with common interests where you can share ideas and discuss successes and failures with people who are genuinely in tune with what you’re doing. This is where clubs and associations can play a big role. If you’re not a member of a real estate association, I strongly suggest you consider joining one.

Having said that, let me caution you: Not all club members are doers. There are people in every group who are going nowhere and are never going to achieve anything in their lives. Pick out the winners and connect with them. When you become a successful real estate entrepreneur (and you will), one of your greatest rewards will be to share your blueprint for success with others.

“What goes around, comes around.” Before you know it, that sharing will attract people to you like a magnet. I can’t tell you the many profitable deals that have come my way through people who wanted to be around me because I was willing to share my knowledge.

Roadblock 5. Lack of Action

There’s an old saying, “Even a turtle won’t get anywhere until he sticks his neck out.” You have to make it happen. You have to get things started. You have to put the wheels in motion. And, if the wheels stop, guess who has to get them started again? You guessed right. Movement, action, activity, progress – they’re essential in any successful business. Without activity on your part, nothing positive will happen for you.

It starts with that first call, that first conversation with a seller, even the first visit to a realtor. But, your ship can’t come in if it never is launched. By action, I don’t mean running in place. You can go to the seminars and listen to the tapes so often you memorize everything on the tapes. You can acquire all the tools you need to do this business. But the time comes to either do something or do nothing.

All the education in the world is worthless until you put it into practice. The best time to start is now. You need to put something in motion. Do something that will get you going on your first deal. Call a realtor for leads. Call a couple of sellers in the classified ads in the newspaper. Drive around looking for FSBO signs or place your own “I Buy Houses” ad in the paper. Just Do It. You’ll be surprised how taking a tiny step will propel you forward toward your goals. You see, any one action on your part can produce a result. Of course, the more actions you take, the more results you’ll get.

Roadblock 6. Wasting Time with Unmotivated Sellers

They may be interesting. They may be wonderful people. They may have heartbreaking stories to tell. However, if they’re not motivated to accept your offers, they’re wasting your precious time and sucking dollars out of your pocket. If you waste enough of your time waltzing with people who aren’t serious about doing business, then you’re not going to be in business for very long. It’s just that simple.

Unmotivated sellers will think up so many reasons “why not” and give you so much grief that you’ll soon become convinced this business works for other people but not you. Unmotivated sellers are people you must avoid like the plague. But, to avoid them, you have to learn to recognize them, figure out their game, and move on. With a little experience, it shouldn’t take you more than 5 minutes to pre-qualify a seller. Do not be rude to unmotivated sellers because in the future they may become motivated sellers.

Roadblock 7. Chasing Dead-end Leads

Chasing dead-end leads is very similar to dealing with unmotivated sellers and can be a tremendous waste of time and energy. Unfortunately, many people never learn how to avoid it.

You can solve this problem very simply. Pre-qualify every prospect who comes your way. If you spend as little as 5 minutes getting pre-qualifying information on a prospect, you may avoid spending hours and hours gathering details about a property you never have a chance of buying. Moreover, any time you can spend minutes to save hours, it’s like putting money in the bank. You should not take a phone call from a prospect and rush right out to look at a house hoping something will develop, especially if business has been slow. Don’t begin measuring for carpet and gathering useless facts before you know if you have a chance to put the house under contract. This is a crazy waste of time, especially when you know you should never leave your desk without a solid reason to do so.

Properly pre-qualifying a prospect will help you to determine if further action is warranted. When making initial contact with a prospect, you should ask yourself 3 questions to determine whether you can make a deal:

  • Can I buy the house wholesale?
  • Can I create a subject-to deal, seller financing, or both?
  • Can I option or lease/option the house?

If the situation doesn’t fit one of these three models, you don’t have a deal. It’s that simple. There is no reason for you to waste any further time on the conversation, much less travel across town to look at a house you’ll never own. Five minutes is all it should take to determine if you could create a deal with the prospective seller. Of course, you’ll have to take the seller’s word on things like the condition of the house, mortgage balances, liens, and judgments. However, if the information seems reliable and you feel the seller is motivated to pursue 1 of the 3 money-producing models outlined above, arrange a meeting and verify your assumptions about the viability of a deal.

When you leave your desk, your chances of putting a house under contact should be about 80%. Instead of being a professional fact finder, you should get into the business of being a professional offer maker. If you use the pre-qualifying procedure on every lead, you’ll save yourself many wasted, unproductive hours, and you’ll start to see your business coming together.

In Part Three, we’ll discuss setting goals for your business and getting started as a Real Estate Entrepreneur.




Your Credit Score: One of your Most Important Assets, Part Four

Here are some suggestions that might help you improve your credit history.

Working on Your Credit History

If you have been managing credit for a short time, don’t open a lot of new accounts too rapidly. New accounts will lower your average account age, which will have a large effect on your score if you don’t have a history of other credit information. And, rapid account build-up can look risky if you are a new credit user.

Remember this point when you are out shopping and the department store clerk offers a $5.00 discount for applying for a new store credit card. The discount seems tempting, and you may want the new card, but don’t do this too often. Try to keep your new credit inquiries to three to four times per year.

As long as your credit is in repair mode, you should avoid making any more applications for credit. It’s likely that you’ll get turned down for credit and the applications will only decrease your credit score. Don’t open accounts just to have a better credit mix – that approach likely won’t raise your credit score.

Establish long-term accounts. Roughly 10% of your credit score relates to the length of time you have had your accounts. It is common for people to hop from credit card company to credit card company, constantly seeking to take advantage of a low introductory interest rate. Again, this makes sense from a financial point of view, but it can lead to a lower credit score. You will be awarded a higher credit score if your accounts have been open and active for a longer period of time. Multiple new accounts lower your score, whereas a stable number of credit accounts that have been used for years will significantly raise your credit score.

Have an emergency fund. A sizeable emergency fund will not directly raise or lower your credit score, but without one your score could suffer in the event of a financial emergency such as an accident or extended illness. If you have an emergency fund to draw on in time of need, you eliminate the temptation or necessity of having to tap the available credit lines on your credit cards. An emergency fund is a safety net for your credit score.

Borrow great credit from a relative. You may be wondering how it is possible to borrow credit from another person. This is easy to do and is especially useful to young adults who have yet to establish credit (although anyone can benefit from this technique). If you have a relative or close friend with excellent credit history, have them add you to one of their credit card accounts. Ideally, it should be an account that has been used for years, has a high credit limit, has low or no balance, and has a perfect payment history with not one late payment. When you are added on this account, the payment history of this account is recorded on your credit report because you share the account. You now have a great credit reference on your account. This is perfectly legal and can be used to raise your credit score immediately.

Helping Build a Great Credit Record 

Have credit cards – but manage them responsibly. In general, having credit cards and installment loans (and paying timely payments) will raise your credit score. Someone with no credit cards, for example, tends to be higher risk than someone who has managed credit cards responsibly.

Have a balanced mix of different credit types. While this is not going to produce huge increases in your credit score, it will help improve it. If you have ten credit accounts on your credit report, it is better to have several different types of credit such as a home mortgage, an auto loan, a few department store cards, and a VISA or MasterCard. You would score higher with this balanced mix of credit types than if all ten accounts were credit accounts at various department stores. Having several consumer finance company credit accounts will affect your credit score negatively.

Be aware that paying off a collection account will not remove it from your credit report. It will stay on your report for seven years.

Know your credit report. It is okay to request and check your own credit report. This won’t affect your score as long as you order your credit report directly from the credit-reporting agency or through an organization authorized to provide credit reports to consumers.

Do your rate shopping for a given loan within a focused period of time. FICO scores distinguish between a search for a single loan and a search for many new credit lines, in part by the length of time over which inquiries occur.

Be patient. Your credit history wasn’t created overnight, so don’t expect it to improve by tomorrow. If you have a history of making late payments on multiple accounts, one payment on time is not going to overcome all the previous negative impacts. But, be patient. Your score will rise over time.

Well, now, what do you think? Can you come up with an instance in which you can put these suggestions into practice and get a great rate on your next loan?

As always, feel free to comment or email me with questions and suggestions.




Your Credit Score: One of your Most Important Assets, Part Three

Some of this information may seem duplicative, but I consider it reinforcement. It’s all good.

Working on the Amounts You Owe

Keep your credit card and other revolving credit balances low. High outstanding debt can affect your score. Maxing out your credit cards could lower your average score by as much as 70 points. Keeping all of your credit card balances below the 50% threshold of available credit will raise your credit score. Keeping all of those balances below the 25% threshold will improve your credit score even more. You should take action at least 60 days in advance of a large loan request to allow time for the information to get reported. Don’t try to improve your credit score three or four days before you apply for a big loan.

Don’t have any credit cards maxed out. One item that has significant negative consequences on your credit score is using all of your available credit. If you want a high credit score, you simply must not use all of the available credit on any of your credit cards. Even worse than reaching your credit limit on any card is actually going over your limit. Not only will you likely incur over-limit fees, you will lower your credit score. Keep those balances low for a high credit score.

Don’t close old, paid-off accounts. It used to be common for financial planners to tell people to close accounts they weren’t using. But when you consider that one-third of your score is based on how much of the credit available to you that you’re actually using, you may want to keep them open. Cutting up credit cards automatically will decrease the amount of credit you have available. It’s better to stick the cards in a drawer until your score is back on track.

If you close your oldest accounts, it can actually shorten the length of your reported credit history and make you seem less creditworthy.

Perhaps you can afford not to care too much about the effect of closing an account. If you don’t use your cards much and your score is already high, the damage caused by shutting down more recent unused accounts will be minimal and may be well worth the peace of mind.


If you do carry balances or charge a lot, however, leave all your old accounts open, especially if you’re about to apply for new credit.


Keep all this in mind the next time a department store clerk offers you a 10% discount for signing up for a new card. Each new account can put a small ding on your credit score and offer a new opportunity for credit thieves. Since closing accounts can hurt, it’s better to apply only for credit you really need.

Closing an account doesn’t make it go away. A closed account will still show up on your credit report and may be factored into your score.


One of the determining factors that affects your credit score is the length of time you’ve had each account. While you might not want to continue to pay an annual fee on a credit card that you opened when you were in college, the annual fee might be worth the resulting benefits to your credit score from having a credit account that is over a decade old. The older an account is, the more it will boost your credit score (provided, of course, that the account has a good payment history).


Keep accounts with balances open. You might be tempted to close out credit card accounts that have become delinquent. Before you close any account, make sure it won’t negatively affect your credit.


Don’t be afraid of credit counseling. If you’re overloaded with high-interest debt and are in danger of falling behind on your payments – or you already have – consider working with a nonprofit agency such as Consumer Credit Counseling Services to set up a debt repayment plan. These services can negotiate lower interest rates and help you pay off your bills within a few years. You can locate a credit-counseling agency through the National Foundation for Credit Counseling.

Contrary to what you might have heard, credit counseling probably won’t hurt your credit score. It used to, but about three years ago Fair Isaac discovered that people in debt-repayment plans were no more likely to default or go bankrupt than other consumers. Today, the FICO score ignores any references in a credit report to credit counseling or debt management programs.

Those references to credit counseling, by the way, are typically removed from a credit report after a consumer has successfully completed a repayment plan. That means there is no lasting reminder on your credit history.

Don’t confuse legitimate, nonprofit credit counseling services with fly-by-night outfits or so-called debt settlement firms. Debt settlement will hurt your credit score, since you’re paying less than you owe, and fly-by-night firms can disappear with your payments, making your credit even worse.

Stay out of bankruptcy if you can. Bankruptcy is much worse than delinquencies, loans or collections. Its impact, however, depends on your credit before you filed.

Bankruptcy can knock 200 or more points off the score of someone with otherwise good credit. People with multiple delinquencies or collections on their reports will see less of a decline because their scores are low to begin with. Either way, recovering from a bankruptcy can be tough. Once a score is pushed below 620, which bankruptcy inevitably does, credit becomes scarce and far more expensive.

High-interest lenders love recent bankruptcies because they know consumers aren’t allowed to file again for another six years, which is plenty of time to squeeze out high-rate payments.

Mainstream lenders, however, generally reject consumers with bankruptcies on their records, and bankruptcies are reported for up to ten years.

Knowing your credit score, and the potential impact of a bankruptcy, might help you steel your resolve to pay off your bills and improve your credit situation.

Once you know the impact on your score, get good, objective advice before filing for bankruptcy. Attorneys may be overly eager for you to file, while consumer credit counselors may be overly eager that you not. Books such as Robin Leonard’s “Money Troubles: Legal Strategies to Cope with Your Debts” offer a more balanced view of the risks and benefits of bankruptcy.

Ask for an increase in your credit lines. One of the determining factors used to compute your credit score is the ratio of outstanding credit to available credit. The lower this ratio, the more it will help to raise your credit score. For this reason, you should ask your current credit cards providers to raise your credit limit on each card. Be careful, however, to ask only those companies that will grant your request without running a new credit report on you. Many credit card companies will automatically grant a request to raise your credit limit every six months provided there were no late payments in the preceding six-month period. Remember, though, frequent credit inquiries will lower your credit score, so ask first if a request for a higher credit limit will require a new credit check.

Plenty to think about, isn’t it? In the next article, you will find some ideas for cleaning up your older credit history and building a great credit score.




Your Credit Score: One of your Most Important Assets, Part Two

Improving Your FICO Credit Score

No matter what your credit score, you can develop a plan for improving it (there’s always room for improvement).

There are no specific rules governing either how long it takes for a credit score to increase or how many points it can go up during any set period. Depending on how debt is handled – from mortgage payments to credit card bills – your score can change from month to month. Most people, however, won’t see their score go up more than about 30 points during any three-month period.

If you have a low score, you can work to improve it by paying all bills on time and paying down the balance on credit cards. That means paying not just the required minimum amount listed on your statement but gradually paying off the entire outstanding balance.

Keep in mind, though, that certain things may impact your credit record longer than others. For example, filing for bankruptcy will continue to tarnish a credit score for seven to ten years. Defaulting on a loan will drag down a score for seven years from the date of the last payment on that account.

Remember, while paying off credit cards and loans is good for a credit score, closing accounts altogether is not. A good credit history is one that includes one or two loan accounts that have been opened and used responsibly for a long time.

Get a Copy of Your Credit Report

You can’t begin repairing your credit until you know exactly where you stand. Obtain a copy of your credit report from each of the three major credit bureaus to find out which accounts are acceptable and which need work. Under the Fair and Accurate Credit Transactions Act, you can obtain one annual free copy of your credit report. For more information visit or call 877-322-8228. You will have to pay a fee to get your credit score.

  • Clean up your credit report. If your credit report contains incorrect information, you have the right to have it removed. Your credit report will include information about disputing inaccurate information with the credit bureaus.
  • Have the credit reporting agencies remove incorrect information. Obviously, if there is incorrect information in your credit report that is to your advantage, don’t ask the credit-reporting agency to remove it. However, very rarely is incorrect information beneficial to you. Periodically check your credit report to verify accuracy of content. If there is incorrect information that negatively affects your credit score, contact the credit reporting agency and have it removed.
  • Call your creditors. They may be the last people you want to talk to, but you’d be surprised at the help you might receive. Talk to your creditors about your situation. Many of them have temporary hardship programs that will reduce your monthly payments until you can get back on your feet.


Rethinking the Big Picture – First Steps First

Stop using your credit cards. In a bad credit situation, one of the worst things you can do is continue accumulating debt by making credit card purchases. Put your credit cards away until you have more control of the situation.

Pay your bills on time. Paying your bills on time is the single most important factor in determining your credit score. Since recent history carries more weight than what happened five years ago, getting in the habit of making on-time payments is an incredibly powerful way to start rebuilding your credit rating.

If you have a low credit score because of late payments in the past, you can start to raise your credit score by making your loan payments on time.

Similarly, delinquent payments can devastate your score. Missing even one payment can knock 50 to 100 points off a good score. Skipping payments for a single month on all your bills can lower your number from a respectable 707 to the range of 560 to 630.

In an effort to avoid late payments, consider putting as many of your bills as possible on automatic payment. Most mortgage lenders, utilities and phone service providers are happy to take their payments directly from your checking account each month. Online bill-payment systems are another way to ease the monthly check-writing chore, and many provide reminder services so you don’t forget a bill. Many computer software programs have reminders as well.

If you have missed payments, get current and stay current. The longer you pay your bills on time, the better your credit score. Remember, your payment history makes up 35% of your credit score. Getting current on your delinquent accounts will have a great impact on your credit.

Pay more than the minimum payments. The credit score formula was designed to measure the likelihood of a borrower to pay back a loan. If you are simply making the minimum payments on your credit accounts, how likely is it that you have the financial capacity to increase your debt load with a new loan? Alternatively, if you are making more than the minimum payments, isn’t that de facto evidence that there are extra funds in your budget? One of the surest signs that a borrower has reached the limit of his debt load capacity is a pattern of merely paying the absolute minimum due. Double up on your payments to raise your credit score.

Pay down your debts – and consider charging less. Pay down the maxed-out credit cards first. You’ll get points deducted from your credit score any time you charge more than 50% of the limit on any kind of credit card.

Lenders like to see plenty of breathing room between the amount of debt reported on your credit cards and your total credit limits. The more debt you pay off, the wider that gap and the better your credit score.

Your credit card issuer looks at your account once every month or so and reports the outstanding balance on that day to the credit bureaus. This snapshot doesn’t reflect whether you pay off that balance a few days later or whether you carry it from month to month.

If you plan to apply for a mortgage, car loan or other major credit account in the next year, start paying down those balances now. And, if you’re in the habit of charging everything in sight to your credit cards – to gain more frequent flyer miles, for example – consider switching more to cash in the months before you apply. Depending on your situation, the loss of a few miles could be more than made up for by a better score and a lower interest rate.

Pay off debt rather than moving it around. The most effective way to improve your credit score is by paying down your revolving credit. In fact, owing the same amount but having fewer open accounts may lower your score. If you don’t have the money on hand, sell some of your belongings to speed up the process. It will be a sacrifice, but the financial freedom you gain will be worth it.

Transfer balances if necessary. It is quite normal for many people to carry a high credit card balance on a low- or no-interest credit card, and simultaneously have a very low or no balance on their high interest credit cards. While this makes perfect sense from a financial standpoint, from a credit score standpoint it doesn’t.

Let’s say you have four credit cards, each with a $10,000 limit. Three of those cards have a zero balance, and the fourth has an $8,000.00 balance. This will lower your credit score because one of the cards is at an 80% outstanding credit to available credit ratio. To get a higher credit score, you should transfer the balance evenly among all four cards, resulting in a 20% ratio on each card. This one simple step will give you a higher credit score.

Learn to spend less than you can afford. The amount you owe is the second largest component used in determining your credit score. If you consistently spend all that you can afford, your amounts owed will be higher, your credit ratio of debt vs. available credit will suffer, and your credit score will be lowered. To get and keep a very high credit score, you must learn to not only spend within your means, but spend even less. Overall, you will raise your credit score by doing this and have extra income available to save and invest for your future.

Negotiate with lenders and collection agencies. If you currently have blemishes on your credit report from previous late payments, it is possible to negotiate with a lender or collector to remove the late payments from your credit report. The smaller and more local the lender is, the more likely you will be to succeed in your negotiations. This is the most effective way to raise your credit score significantly in a short period. Collection agencies usually are paid on commission and aggressively try every avenue to collect a debt (and get paid for their work). Be sure to get your agreement in writing; you can be promised anything by a collection agent, but enforcing a verbal promise after you have paid could be impossible.

Negotiation is an art, not a science. There are no exact rules to follow that guarantee success. However, there are some things you can do that are more likely to bring a favorable outcome. Be courteous and polite. Collectors work in a tension-filled environment and constantly deal in conflict. Be extra kind and polite and appeal to their human decency. They may look favorably on you and remove items without need for negotiation. Businesses also will be likely to remove negative elements from your credit report if it is their best interest. The more significant your account, the more they have to lose, and the more likely they are to respond favorably.

When negotiating to remove derogatory information from your credit report, ask what it will take and what can be done. Oftentimes, a lender will offer a solution that hasn’t occurred to you. Think outside the box, and your credit score will reap the rewards. If you are not successful at removing negative items, you may want to hire a specialist.

Still with me? In the next article, we’ll look at some practical ways to reduce the amount of debt you carry with, as always, an eye toward improving your credit score.


Your Credit Score: One of your Most Important Assets

Today begins a four-part series of articles on your credit score – and improving it. Much of the information I will provide is familiar to you; I suggest you review it anyway. You never know when something will “click” and be that special consideration you’ve been missing. Let us begin.


One of the first steps in getting your finances under control is understanding the importance of your credit score. In today’s world, a “good” to “great” credit score is one of your best assets. A good credit score can help you get a job, receive a better home mortgage rate, a better car loan rate, a lower interest rate on your credit cards and, if you work for a government contractor or the government itself, a security clearance. A good credit score will help you save money; by maintaining a good credit score, you will ensure that your finances are in proper order.

Keys to obtaining a great credit score include the following.

  • Pay your bills on time. I cannot overemphasize this. If you already have some late payments on your credit report, focus on paying your current bills on time. As you are able, go back and begin catching up on old bills.
  • Do not use all of your credit limit. Always keep some room available on your credit limit. This has a positive effect on your credit score. A good rule of thumb is to use only 30% of your available credit on your credit cards. If you have a $15,000 credit limit on your card, do not go over $5,000 usage at any one time. Most lenders do not like to see maxed-out credit limits on credit cards.
  • If you have large credit-card debt and you have several credit cards, begin paying down the debt on the card with the highest interest rate and pay extra principal payments each month to pay down the balance. As soon as possible, pay down all of your credit cards to an amount that is 30% of the credit limit on each credit card. Then, begin paying extra principal payments on the credit card with the lowest balance until it is paid off. When you have one card paid off, begin paying extra principal payments on the card with the next lowest balance until all of your credit cards are paid off. When all of your credit cards are paid off, pay each credit card off each month and do not carry unpaid credit card balances into the next month.
  • Keep paid-off credit cards open with all available credit limit unused. Having ample unused credit limit will help your credit score. When people have large credit card balances, one of the first things recommended is to cut up all of your credit cards and close out the paid-off accounts as soon as they are paid down to zero. This actually hurts your credit score. Closing existing credit cards lowers your available credit and drives down your credit score. In today’s economic world, you need four to six lines of credit. This can consist of credit cards and unsecured lines of credit with a bank. It is not enough to just have the available lines of credit; you must use them to show activity and financial responsibility. It is best to use each line of credit at least twice a year. I recommend that you pay off the balance each time you use one of your credit cards.
  • If you have a credit card with a large balance that also has a high interest rate, do your homework and find a card with a “teaser” no-interest rate for six months or a low interest rate for a period of time, and move the balances from the high-interest rate card to the low-interest or no-interest card; then, concentrate on paying off the balance owed on the new card. Remember, do not close out the old card – and keep it open by using it at least twice a year and paying off the balance as soon as you use it. If you have more than six credit cards, you certainly can close the excess number of credit cards.
  • Many people have “back-of-the-wallet” credit cards – that is, credit cards that are carried but rarely or never used. The first thing that you should do is put these seldom-used cards in a safe place in your home. If your wallet is lost or stolen, you will not have to cancel these cards and get them reissued. You should still use these cards at least twice a year and pay off the balances immediately to keep these cards active and your credit limit on these cards valid.

According to a poll conducted by Opinion Research Corp., only 27% of consumers understand that credit scores measure credit risk. The truth is, a credit score, sometimes called a FICO score, is a number based on the information in a credit file that shows how likely that person is to pay back a loan on time. The higher the score, the less risky the person is.

A FICO score is a quick way for lenders to assess how risky a person is as a potential borrower. The higher the score, the less risk to lenders and the more likely a favorable rate will be offered.

There are three major credit bureaus: Experian, Equifax and TransUnion. The credit bureaus write credit reports based on information they receive from companies that extend credit. This information includes payment history, length of credit history, types of credit offered and amounts owed. From that report, a credit score is derived.

Scores range from 300 to a perfect 850. A “passable” score would be 620. That’s a drawing line for creditors. (The median credit score in the United States is 723.)

Consumers with scores above 700 usually are charged relatively low rates, and those with scores above 760 are charged the lowest rates. Consumers with scores below 600 typically are charged relatively high rates. If a person’s credit score is very low, he/she may not be able to borrow at all.

Any late payments will lower a credit score, but establishing or re-establishing a good track record of making payments on time will raise a credit score.

How Your FICO Credit Score is Calculated

The best way to ensure a good FICO credit score is to manage your credit responsibly. To maximize your score, it is important to understand what goes into the calculation and how each factor is weighted. Below is a rough breakdown of what comprises a credit score.

Punctuality and Payment History: 35% – Takes into account:

  1. Many different types of payments, including mortgages, major credit cards, department store credit cards, car loans, other installment loans such as for furniture,
  2. Information from public records, such as bankruptcies, liens, lawsuits, foreclosures, judgments, and wage garnishments, and
  3. Details of any missed or late payments, such as the amount, how long ago late payments occurred, and how late the payments were paid.

Amounts Owed: 30% – Looks at:

  1. The total of all the amounts owed for all accounts,
  2. The mix of amounts owed (credit cards versus installment loans, for example),
  3. The number of accounts that have balances,
  4. How much of the total credit available on credit cards and installment loans is being used (the closer a person is to maxing out the available credit, the more negative the impact on the credit score), and
  5. How much of the original balance borrowed still owed on installment loans, such as a car loan.

Length of Credit Accounts and Credit History: 15% – Having a credit card for ten or more years is a plus for a FICO score. The less negative information in your file and the longer your credit history, the higher your score.

Recent Requests for Credit and Recently Obtained Credit: 10% – Considers:

  1. How many new credit accounts have been opened recently,
  2. How long it has been since you opened a new credit account,
  3. How many requests you’ve made for credit recently,
  4. How long it has been since lenders have requested credit information on you, and
  5. How good your recent credit history has been. 

Types of Credit Accounts in Use: 10%­ – Considers the number of credit accounts and the mix of credit types (credit cards, installment loans, mortgages). This is important if you don’t have a long credit history.

So, now that you know what makes up a credit score, where do you fall with regard to the factors above? Do you know your credit score?

This is a good stopping point. Over the next three articles, I will discuss the concept of a credit score in more detail and provide some helpful suggestions for improving a credit score. As always, feel free to email me directly with questions.



Welcome to the new home for CentraLand

THOMAS BAIRDWelcome to the new look of CentraLand Title Company on the web. On behalf of everyone associated with CentraLand, we are happy to host a dynamic and, frankly, interesting title company website. We know you will find information you can put to good use.

From our expert staff, to our accessible on-line order form, CentraLand stands ready to assist you with your real estate needs.

In upcoming months, our blogs will provide information about a host of real-estate-related topics, including 1031 exchanges, retirement account investing in real estate, opportunities for commercial real estate developers, and residential opportunities. Blog topics will be presented by true real estate professionals. If you would like to suggest a blog topic or simply would like to request additional information, please email me at

When the need for a title company arises, think CentraLand Title Company – we stand ready to assist you.


Thomas C. Baird, Principal