Hard money loans have long been viewed as the last resort of the desperate borrower with credit scores too low to qualify for the supposedly better bank loans. This may have been true at one time, but today hard money loans (also referred to as bridge loans) are being utilized by a variety of borrowers for their flexibility and willingness to work with borrowers that banks are not assisting. Hard money loans from non-bank lenders offer loan programs for cash-out refinancing, bridge financing, marijuana-tenanted real estate purchases, note purchases, and myriad other outside-the-bank lending areas. So why worry about your credit score if you’re already using bridge money loans for your real estate investments? Even though private lenders don’t weigh credit scores heavily in their calculations and their decision to fund a project, they do use them to determine the interest rate that they offer to their borrowers, and a higher credit score can earn you a lower interest rate. In terms of interest rates, lower is always better!

So how can you improve your credit score to lower your interest rates? Here are five simple ways to raise your credit score:

1. Improve or maintain your payment history. Payment history accounts for 35% of the algorithm used to calculate your FICO score, so the fewer delinquencies on your accounts, the better your score will be. If you’ve had difficulties with delinquent accounts in the past, ensuring future payments are made on time is a great way to improve your credit score. Payment history is tracked for both revolving credit and installment loans, though the latter is weighted more heavily, so making mortgage, auto, and other installment loan payments on time is the most important step towards raising your credit score.
2. Decrease your credit utilization. Another 30% of the FICO algorithm comes from your credit utilization. This is the percentage of your available credit that you are actually using. The credit bureaus view borrowers who use a higher percentage of their credit as potentially overextended and higher risk. Experts typically recommend a credit utilization percentage between 10% and 30%. You want to be seen as using your credit but not overly depending on it.
3. Pay down current debt. A quick way to improve your credit utilization is to pay down revolving credit if you have the liquidity. This gets reported back to the credit bureaus monthly so it can raise your credit score quickly.
4. Request a credit-line increase. If you have a good relationship with your credit issuers, requesting an increase in your available credit is another way to have a positive impact on your credit utilization as long as your spending does not also increase.
5. Avoid opening new accounts and applying for new lines of credit. Although credit line increases are helpful, new credit, whether it is a new installment loan or a new credit card or personal line of credit, is less helpful. Rate shopping and new account dings can lower your FICO score 5 or more points which can result in as much as a 0.25% difference in your interest rate.

The FICO algorithm also cares about the length of your credit history, so establishing credit early is important but a more difficult factor to influence than the ones mentioned above.

To find out about the interest rates that Montegra can offer you on our private capital loans, contact us at loans@montegra.com or 303-377-4181.