Keeping a close watch on your credit score is essential for getting a VA Loan. Although VA Loans and not credit score driven and can be fairly lenient when it comes to credit scores, it is still very important to be careful and watchful of your credit at all times. In this article I will discuss some tips to keep your credit outstanding and also tips to raise your credit score if you currently have a lower score then you would like.
Basics of how credit scoring works
Mortgage companies and VA lenders use a VA borrowers numerical credit score as part of the process in making the decision whether to extend credit through a VA Loan to that borrower. There are 3 different credit bureaus that your creditors report to; Equifax, Trans Union and Experian. Each of these credit bureaus have a scoring model where they analyze your total credit history and produce a score from 300 to 850. 300 being the worst possible score a borrower could have and 850 being the best possible score a borrower could have. When VA loan companies like myself do a credit check during the pre-approval process, we pull what is called a “tri-merge 3 bureau report”. This credit report merges information from all 3 credit bureaus into one report and produces 3 different credit scores. VA lenders throw or the high score and low score and go off your middle score in assessing your credit worthiness. It is very important that you find out what your scores are. You can contact me and I can access your full 3 bureau mortgage oriented credit report for the best picture of your credit. Or you can also go to the individual bureau web sites to check for yourself. This won’t be a merged report though and it may be score differently than a mortgage report that we would pull for you. But it would still give you an good idea where you stand.
Factors That Increase Scores for
Some of the factors that increase your score are:
- On-time payments, no late payments on any accounts
- Keeping your revolving debt (credit card) balances at 30% or less than your credit limits with that creditor
- No collections or judgments
- Having enough credit lines – it can hurt your score if you don’t have any or enough lines of credit
- Time since first opened line-of-credit. If you cancel credit cards, cancel the newer ones first, try to keep the older ones that you have had for a while.
- Time since derogatory items first occurred. The saying “time heals all wounds” also applies to dings on your credit, the more time that lapses since a late payment or
Factors That Hurt Scores
These are of course the opposite of the above.
- Late payments are the #1 thing that can really hurt your credit score. You have to be a maniac about making every payment on time and never having a late payment on your credit. Set your credit cards, car payments, student loans and other obligations on automatic payments so you never miss a payment
- Try not to “max-out” your credit cards – keep them at 30% or less of your credit limit
- Don’t let unpaid items go to collections, try to negotiate with creditors. If you have a collection on your report, it will not improve your score to pay it off. This is counterintuitive, but it is how the credit scoring system works. If you have a collection it is better to wait until right before you close on your house with your VA Loan before paying off. VA lenders may or may not ask you to pay off collections prior to close
- It is good to keep at least 4 credit lines open. A credit line can be a car loan, student loan, home loan, or another type of loan. You can open up a credit card and just use it for required life expenses such as groceries, but pay it off every month.
- And of course bankruptcies, foreclosures, short sales hurt your credit. However 2 yrs after a Chapter 7 bankruptcy you are eligible for a VA Loan (less than that if you can document extenuating circumstances), 3 years after a foreclosure and 2 years after a short sale. I have seen borrowers with terrific credit scores only 2 yrs after a bankruptcy, so all is not lost.
How To Quickly Raise Your Score
If you currently have a credit score too low to obtain a VA Loan, don’t give up, there may be a way to quickly raise your credit score to qualify for a VA Loan. At www.socalvaloans.com we have available to us a way to work with the credit bureaus to do a “rapid re-score” and sharply increase your credit score in 2-5 days. We also have a software tool to analyze different things you could change on your credit and how much that change would raise your score. OK, so now on to some quick tips to raise your score:
- First make sure you get a merged credit report from all 3 bureaus (we can obtain for you) and go through every detail and make sure their are no mistakes. If you find mistakes contact that creditor immediately and have them remove the mistake from your report
- If you have credit card balances that are 30% or more than your credit limits, try to either pay those cards down to 30% or transfer the balances to other cards where you spread out you credit card debt to more than one card where no balances are above 30% of your credit limits.
- If you have collections or judgments on your credit report, call the creditors and ask them if they would be willing to delete the item from your report if you paid some or all of collection. It’s important to get in writing that they will NOT just mark the item paid on your credit, that they actually DELETE the item entirely from all 3 credit bureaus.
- If you do not have “enough” credit, open a store card or something like that to get more lines of credit. But be careful with applying too many places at once, as too many inquiries can hurt your credit.
Once your complete some of these activities to raise your credit, we can do a “rapid re-score” and have new credit score for you in 2-5 days!
So these are some items to keep in mind when you are getting ready to buy or refinance with a VA Loan. Please call us today for a free evaluation and counseling regarding your current credit situation.
Rob Chomentowski
Sr. Loan Officer
858-922-7899
rob@affinity-financial.com
www.socalvaloans.com
www.socalfhahomeloans.com
