How to Improve Your Credit Score for a VA Loan
A good credit score is essential for securing a VA loan with favorable terms. If your credit score needs improvement, here are steps to boost it and enhance your chances of loan approval.
Check Your Credit Report
Start by obtaining your credit report from the three major credit bureaus: Experian, Equifax, and TransUnion. You can get these for free once a year from AnnualCreditReport.com. Review it for errors or discrepancies and dispute any inaccuracies to have them corrected. Mistakes on your report can unfairly lower your score.
Pay Down Debt
High credit card balances can negatively impact your credit score. Focus on paying down existing debt, starting with high-interest accounts. This not only improves your credit score but also saves you money on interest payments. Aim to keep your credit utilization ratio below 30%. The credit utilization ratio is a key component of your credit score and represents the amount of revolving credit you are using divided by the total amount of revolving credit available to you.
Make Timely Payments
Consistently making on-time payments is crucial for a good credit score. Payment history is one of the biggest factors in your score. Set up automatic payments or reminders to ensure you never miss a due date. Late payments can significantly lower your score and stay on your report for years.
Avoid Opening New Credit Accounts
Each new credit application results in a hard inquiry on your report, which can lower your score. Multiple inquiries in a short time can look risky to lenders. Avoid opening new accounts unless necessary, especially during the loan approval process. It's best to focus on managing the credit you already have.
Maintain Old Accounts
Length of credit history is an important factor in your credit score. Keep older accounts open, even if you don’t use them frequently. Older accounts show a longer credit history, which is beneficial. Closing old accounts can shorten your credit history and reduce your score.
Diversify Your Credit Mix
A healthy credit mix can positively influence your score. Credit mix refers to the variety of credit types you have, like credit cards, auto loans, and mortgages. If you only have credit cards, consider adding an installment loan, like an auto loan or personal loan. Ensure you can manage any new debt responsibly and don’t take on more than you can handle.
Monitor Your Credit Regularly
Regularly monitoring your credit report helps you stay on top of your financial health. Use free credit monitoring services to track changes and receive alerts about any suspicious activity. This way, you can quickly address any issues that might arise and protect your score from potential fraud.
Improving your credit score takes time and discipline, but it’s a critical step in securing a VA loan. By following these tips and maintaining good financial habits, you can boost your credit score and achieve your homeownership goals.
Notes from the Lenders: Understanding credit scores can be complex due to the discrepancies between scores provided by different apps and services. Scores from credit card companies or Credit Karma often differ from those used by mortgage lenders, as they employ different FICO models. For a more accurate representation, rely on platforms like myFICO.com, which use the FICO 5 model preferred by mortgage lenders. These scores typically run lower than retail scores, impacting loan terms and eligibility. Addressing fraudulent information on your credit report is crucial, focusing on disputing items with credit bureaus and filing police reports for identity theft. Different types of financing involve varying risk models, with mortgage lenders generally having stricter criteria due to larger loan amounts and longer terms. Understanding your credit profile's composition is vital, with revolving lines of credit typically considered more important than installment loans.
If you are thinking about buying or selling a home, whether now or in the near future, reach out to the team at Dorazio Real Estate! We’d be happy to discuss more strategies to locate your dream home or get your existing home sold fast and for top dollar. If you are relocating outside of the Chicagoland area, you can also reach out — we can put you in touch with another MIL-Estate agent anywhere in the country!
