Finance Roll

When most people start learning about personal finance and focusing on building their wealth, they learn about the wonders of investing. Investing can mean a lot of different things, such as investing in stocks, assets (like real estate), or a business. When you're starting out you naturally look for ways to increase your own personal cash flow to save up money to eventually invest in something. While this is a good way to get the ball rolling, and any way you decide to invest is a good thing, there is a better way. If you could use other people's money to invest instead of yours, would you? I think most people out there would say a definite yes.

Having a good credit score is worth its weight in gold nowadays. Having excellent credit marks you as low risk to lenders, making it easier for you to get approved for loans. Not only do you increase your chances of being approved, you'll be approved at the lowest interest rates which makes your debt "cheaper." In that way, having a good credit score gives you access to a lot more capital than you could come up with on your own. If you're able to use that money to make smart investments that generate income and cash flow, then you are making money on someone else's dime.

This method aligns easiest with real estate investors as getting approved for a home loan, even if it's for an investment property, is usually easier than getting approved for a small business loan or attracting venture capitalists. But your credit history is taken into account by anyone who could possibly go into business with you and lend you their money. It's basically a quick way to analyze a person's ability to be fiscally responsible. While not a perfect tool, it does give potential lenders a standardized resource to help them protect their money.

Obviously being a successful investor is not always as easy as it seems. Investing money, whether it's yours or someone else's, is not an exact science. Many aspiring businessmen have crashed and burned, so you always have to analyze the risk and potential reward of any business opportunity. Even if you are able to borrow money to invest, you have to understand that you are putting your credit history on the line, and any slip up in repayment will show on your record for years to come. But if you have the knowledge and determination (along with a little luck), having a great credit history can provide a spark to your wealth building plan.

For tips on improving your credit, check out our Know The Ledge article How to raise your credit score.