Veterans and Improving Your Credit Score
Improving your credit score can help you get better terms on a VA loan, which can save you money. It’s worth understanding credit scores, getting your report, and learning how to improve credit score reports.
What Determines Your Credit Score?
There are five categories used when determining your credit score, each worth a different percentage of your score:
- Payment history – 35%: Your score in this area will go down if you pay bills late, have gone through bankruptcy, or have had any bills in collections. More recent incidents are worse for your score.
- Outstanding debt – 30%: This is determined by how much you owe on your car, home, credit cards, and other loans and by how close your credit card balances are to their credit limits.
- Length of credit history – 15%: The longer you’ve had active credit, the more data you’re giving the credit bureaus, which they regard in this category.
- New credit – 10%: This refers to opening new credit accounts and giving lenders permission to check your credit score. The more activity you have, the worse your score.
- Types of credit – 10%: The more different types of credit you have, like installment loans and revolving credit, the better your score.
If you can only focus on one or two of these categories, the first two will have the greatest effect.
How Veterans and Military Personnel Can See Credit Reports
It’s smart to get a copy of your credit report at least once per year, because your report influences how much money you can borrow and even what jobs you can get. Your credit report can have mistakes in it, and it’s important that you catch them and report them.
The three biggest companies that collect credit data are required to send you a free credit report every year, if you request it. You can ask to see your report from TransUnion, Experian, or Equifax or from two of them or all three at once. Here’s how to place the request:
- Follow the instructions on AnnualCreditReport.com.
- Print out and send in the Annual Credit Report Request Form.
- Call 877-322-8228.
You’ll have to give them your name, date of birth, address, and social security number, just to confirm your identity. They might also ask you some other questions to make absolutely sure that it’s you. This is to protect everyone’s information and get you a free report.
- A company turned you down for credit, a job, or insurance based on a credit report.
- You’re on welfare.
- Your credit report has mistakes in it because of identity theft or another type of fraud.
- You’re unemployed and planning to search for work within 60 days.
- Laws in your state contain a provision for a free credit report.
You can also just pay for a copy of your credit report. Each of the three major reporting companies can charge around $10 or more for a copy.
Veterans and Improving Credit Scores
Have you looked at your credit score and want to know how to improve credit score reports? Here are six tactics you can use:
- Read every word of your credit report. There are mistakes on as many as 25% of credit reports. If you find any, you should report them to the three major credit reporting companies. They’re not going to search for mistakes for you, so this is your responsibility.
- Always pay on time. This is one of the most important things you can do, because it improves the biggest category that determines your credit score: your payment history. Keep at it, and your score will keep rising.
- Keep all your credit accounts open. Even if you don’t use an account, it can still help your score, because it will improve your score in the areas of length of credit history and outstanding debt.
- Lower your credit card balances. Pay your credit card balances down to between 25% and 75% of the credit limit on each one.
- Don’t allow many inquiries on your credit report. Only let a company request your credit report if you really have to. If you’re shopping around for a loan, make sure all these inquiries are completed within two or three weeks, so they count as just one inquiry.
- Don’t get new credit cards to try to raise your score before applying for a mortgage. Having available credit and not using it is part of a good credit score in the long run, but getting a few credit cards in a row actually lowers your score for a while.
Remember that Low VA Rates doesn’t require a minimum credit score in order for you to qualify for a VA loan. However, a great credit score can win you better loan terms. So, it’s still a good idea to work on your credit score.
If you want a VA loan to buy your own home, it can really help to start improving your credit score a year or two before you plan to apply for a mortgage. It can take that long for the reporting companies to realize that you’re paying off your loans. It can also take you a year or longer to fully pay off certain debts.
So, pay down your credit cards, and work toward paying your full balance every month. If you’re overdue on any accounts, do everything possible to catch up. Pick one loan and fire extra money at it every month until it’s destroyed.
This will all be worth the effort once you get a great VA loan and refinance your mortgage or buy the home you want. If you have any questions, you can contact Low VA Rates.