VA Loan Built Your Credit
VA Loan Built Your Credit. Good credit is necessary if you plan to use credit to purchase the home of your dream someday. The only way to build a credit history is to use credit. The key to building good credit is to use credit wisely. Whenever you submit an application for a loan, insurance or credit card, new information is added to your credit report. If you have little or no credit history, you can build credit responsibly over time.
VA home loans have their own unique suite of approval guidelines. Additionally, VA home loan guarantee what lenders like. VA Loan Built Your Credit also require the lender to verify the borrower has a responsible credit history but does not require a minimum credit score. Lenders however, do use credit scores when approving VA loan applications with most lenders requiring a minimum score of 620 to 640.
Your credit score is calculated considering payment history (35%), available credit (30%), length of credit(15%), types of credit(10%), and credit inquiries (10%). So the category that affects your credit score the most belongs to the payment history of the borrower. If your payment’s were made on time.
Your score will increase, if they weren’t, how late were they? Late payments are noted in terms of more than 30 days late, more than 60 and more than 90. If a payment is more than 30 days late, the scores will drop. If a made payment is more than 60 days late, the scores fall even more, and so on.
The next category is the available credit which is the amount of outstanding credit accounts compared to the credit limit assigned to the account and expressed as a percentage. The ideal amount appears to be approximately 30 percent of the credit limit. An account with a zero balance will have little to no impact. So How can a creditor evaluate your credit if you’ve never charged anything?
As the balance however increases, the credit scores will be affected. If the balance goes and stays at 50 percent, credit scores will fall. If the balance goes to and remains at 80 percent, scores fall further still and severely damaged if the loan balance exceeds the credit line, even if temporarily.
So the fastest way to repair credit scores for a VA loan is to concentrate on the first two categories, which make up 65 percent of the total score.
There’s nothing one can do to affect the Length of Credit portion except wait. Those with good credit over an extended period will have better scores than new borrowers. First, make sure you make all credit payments on the due date or at least not more than 30 days past the due date. Second, pay outstanding credit balances down to 30 percent of the available credit.
Simple activities like open a savings and checking account to manage your money, get a good job and start saving money, open a small loan and do the payments on time, and apply for a credit card and use it occasionally for small, affordable purchases will improve enormously your credit score. And remember pay your balance in full and pay it on time. If you have to carry a balance, keep it at less than half of your credit limit as to not impact your credit score. Pay it down as quickly as you can.
WHAT NOT TO DO?
Believe it or not, when you apply for credit, having no credit is almost as bad as having bad credit. And building good credit is like building your reputation, it takes time. Here are a few actions to avoid when you want to build your credit history:
- Don’t overcharge your checking account with expenses, this will increase your interest fees, and you could damage a good reference.
- Don’t apply for too much credit cards in a short period of time, this will negatively impact your credit score.
- Don’t let friends have access in any way to your bank account. You are the only responsible for the use of your accounts.
- Avoid compulsive shopping, or big expenses that you cannot afford.