Should I not build my credit score up?

Question

Should I listen to Dave Ramsey's rule and not build my credit up. I want to start investing into Real Estate at a young age, Im only 20 right now and don't know if I should start to build my credit up. Dave Ramsey says that you can purchase a property with a zero credit score and still get a mortgage. Any tips or suggestions for someone starting at a young age would be an amazing help. Im located in northern New Jersey so any local investors that would like to help me get on the right track would be much appreciated. Thank you.

Paul G. · Answer

I don't know of a single lender that would lend to me with a credit score of 0.  Or under 500 for that matter.  I mean, maybe a private lender, but you're looking at 15-20% interest.  No thanks.  Establish credit immediately and either don't use the card, or use it frugally.  The whole point of your credit score is to show how financially responsible you are (and to keep information in unsecured locations so people can hack the system and get all of your information... Apparently).  Establishing and building credit can only help you (if done properly) when looking to get into REI.

As far as Dave Ramsey being a moron.  I believe the quote was taken out of context.  If you plan on getting any mortgage at all on a property, you better have a decent credit score.  Buying in cash is a luxury most people can't do (and it doesn't make sense to do in a lot of situations).  Not knowing the full quote and context of Dave Ramsey, I won't comment any further on it beyond the fact that he has a track record of wealth (but that doesn't always mean he is smart).  Take everyone's story with a grain of salt and question everyone, regardless of how "smart or wealthy" they seem.  You'll find that quite a few of the people that are wealthy or successful (including some on this site) are either wealthy from another means, started out with a huge fund to begin, or got lucky.  I'm not saying that Dave falls into this category, but I would question any piece of advice you get, regardless of source.  Heck, I stumbled into my first deal and got pretty lucky.  I won't deny it.

Having no credit CARDS (which is what he is probably referring to), and paying in cash makes it harder to get into financial trouble.  If you don't have the cash now... You can't buy it.  Basically, he is just trying to teach financial responsibility.  If you are able to understand cashflow and personal finances, having credit CARDS are no more risky than paying in cash.

Ian Olmsted · Answer

If you are getting a mortgage, you are using credit.  So why would you be against building credit when your goal is to have credit?  If you are going to go "full Ramsey", start saving and pay cash for your properties.  If you are undisciplined, getting a credit card can get you in trouble quickly.  Credit cards aren't a bad idea, but using them irresponsibly is.

Think about it.

Alexander Felice · Answer

poor/no credit score will hinder you immensely.

You're going to pay more interest

You're going to find it much harder to get loans

Lots of private lenders are going to pass on you

You're going to pay more in fees and utility deposits

What partner is going to want to work with you on a deal when you can't show success in your personal finance?

you can go get a secured card from a bank right now and have a great score in a few short months (albeit on low max limit). Dave Ramsey says you don't need a credit score maybe to get a primary mortgage, but you're for sure going to need one to get any investment loans.

Linda S. · Answer

@Christopher Lugo

100% Absolutely build up your credit score!!!!! Go get a credit card now (no annual fee) and then every year ask for an increase in limit.  Do NOT keep a balance, pay it off in full.    Credit and leverage are the basis for real estate,  and even if you don't invest-- credit is 100% necessary!!!!     No offense, but IMO only morons don't have credit, or think they don't need it.. it's the basis for getting any loans or anything-- it shows your dependability!

Since you're young,  I'd also recommend taking some basic construction classes, such as HVACs, drywall, etc so you can do stuff yourself on properties!  Find a mentor in your area, and offer to help for free to learn the business!

Joseph M. · Answer

@Christopher Lugo has some great advice in many cases. I believe he tells people not to use credit cards because he knows a lot of people will likely start using them and living beyond their means.

Not sure if you know his story or not but he actually had a large portfolio of millions in property when he was young, but was overleveraged and he got in trouble.

I can see after his bad experience why he would be against debt.

I think it is good to have at least one credit card, a secured card is a good way to start and it's what I used years ago to start building credit. Another reason to get a credit card is sometimes you'll need one in certain situation like if you need to rent a car. I believe most car rental companies require a credit card versus ATM card.

Another good reason to start building credit early is that it helps your score to have accounts that have been opened a long time.

Of course pay it off every month and just use it for essentials.

There are some investors that get into their first property using credit cards, including some guests on the BP podcast...but of course that's not going to be recommended by too many people.

You could use credit cards to fund a rehab for example and might end up paying less than borrowing that money from a hard money lender for example. Some cards have zero or low interest for a certain period of time.

Different credit cards are useful for different purposes.

Some people also travel all around the world using credit card rewards with little money out of pocket.

Credit is definitely a double edged sword...it can be used for good or bad.

As one famous real estate investor once said :

“I’m the king of debt. I’m great with debt. Nobody knows debt better than me,” Trump told Norah O’Donnell in an interview that aired on “CBS This Morning.” “I’ve made a fortune by using debt, and if things don’t work out I renegotiate the debt. I mean, that’s a smart thing, not a stupid thing.”

Linda S. · Answer

@Christopher Lugo,

Credit is very important in any and every aspect of your financial life!    A lot of people get confused thinking "if I don't take credit, it's great, and will show companies I am frugal and don't need to use anyone else's $$"---- nope--- credit card companies see it as they have 0 proof you will pay bills, so therefore with no credit--- they are going to guess you will default.  You have to understand it from the credit card company's perspective and their risk analysis.

I tell everyone starting out--- get a card (no annual fee), and buy a pack of gum every six months, pay it off,   and each year ask for an increase.     Credit shows financial responsibility-- can you borrow money, and pay it back?   Are you dependable?      Can you handle having $$ (credit limit) and not spend it?   Just always--always--always--always pay it off in full.        Paying it off in full, never putting more than 30% of your limit on there, is the secret sauce, and then just increasing your limits.

To speed up the process, you need steady income, and a down payment!    Have you ever thought of house hacking?

Harjeet Bhatti · Answer

Definitely work on your credit score. That's going to help in any type of loan you would like to obtained.

Kyle McCorkel · Answer

I agree, go get a credit card right now.  Just be smart about it...it sounds like common sense, but most people don't get it for some reason...

1. Pay it off, in full, automatically, on time, EVERY month.  NEVER fall behind.

2. Don't spend money that you don't have...it's not that hard.

Should I not build my credit score up?

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