5 Ways Veterans Can Build Good Credit for Lower Rates
Building good credit to get lower rates is a process that can take some time, but for buying a home with a VA loan, it’s a huge game-changer. Building your credit score will enable you to pay less per month on your mortgage, buy a bigger house, or pay off your home more quickly.
When you pair that with the VA loan program, the results can be amazing, letting you buy a home with no down payment and make affordable payments for the life of the loan.
This is why building your credit score will be a financial windfall for veterans. It saves you more money as the loan goes on. Your FICO credit score is the primary indicator of what your interest rate will be, and is the only one that you can control directly.
Good credit works like a cheat code in a video game. It makes each transaction in your life easier. You don’t have to worry about whether you can get a credit card or qualify for a cell phone or a car loan. So even if you aren’t buying a home or looking to refinance your VA loan, these are good rules to follow.
1) YOUR PAYMENTS HELP YOUR CREDIT
Back in 2015, FICO started a program that “allows 12 of the largest credit card issuers in the U.S. to use alternative data to identify creditworthy individuals who would otherwise be unlikely to obtain traditional credit.” Previously, your utilities, phone, and other essential payments were not counted towards your score.
“Based on extensive research, FICO’s data scientists found that alternative data such as property records, telecommunications, and utility information can reliably be used to score 15 million consumers who do not have enough credit data to generate FICO scores,” and they have expanded the system to more citizens since then. This means that if you have positive payment histories on your cellphone, cable, or utility bills, you will get credit towards your credit score. Start by checking out your credit report. Then get a hold of each provider to see if they will report your payments to FICO if they are not included. Landlords can also report this, so renters can be helped by these reports.
2) BRING IN THE PROFESSIONALS
Do you have late payments or worse, defaults? They will destroy your credit score. If you have these blemishes on your record, there are ways to stop them from ruining your score.
If these were caused by a financial emergency, many creditors will agree to negotiate payment plans. They want to get your money, so they will work with you to get it as fast as they can. Getting this to work could help you to avoid late or missed payments. If you have late payments and are wrestling with creditors constantly calling and threatening you, you can ask the creditor to remove these problems on your report. Don’t wait for issues to disappear; proactively make deals with your collectors to get these debts paid off and get rid of your negative credit items.
3) GET RID OF THE BIG DEBT FIRST
While cutting down smaller payments first may seem like a great way to get rid of your debt, it’s not necessarily the smartest strategy. While you may cut down on the potential for a missed payment, MyFICO says that paying off your bigger debts, like credit cards, will actually help you raise your credit score faster.
Start the fight by making the largest possible payment on your biggest debts, and the ones with the highest APR (Annual Percentage Rate). If you’re dealing with a lot of credit cards, start whittling down the one that has the most available credit used on it to aid your credit utilization score.
Getting this down to between 10-3-% of the total credit limit is optimal.
4) RAISE THOSE LIMITS
I know, more credit can be a problem – if it’s available, many people will spend it right away. However, giving yourself more credit utilization room is a great strategy.
Start with a call to your credit card company. Ask them to raise your available credit. They don’t have to do it, but many will just because they would like to see you spend more money. Your balance isn’t the only thing that they will look at when deciding to raise your limit; if you’ve made higher than the minimum payment for several months prior to the ask it won’t hurt.
5) DON’T START OVER
Fixing your credit is a slow and steady process. You want to stay the course for as long as possible in order to gain the most ground. Don’t start any new credit accounts, but don’t close out everything either. Applying for new cards will count on your credit report, which can hurt your score. If you start opening a lot of cards all at once, you can really damage your credit heavily, and give credit reporting agencies the idea that you are living entirely on your credit cards.
However, closing cards will shorten your credit history, while lowering how much available credit you have. It can also raise your debt utilization ratio since you will lose the available credit on those cards. Use these old accounts on occasion, making small purchases, and pay them off immediately, which will keep your credit current and moving. Just make sure that you pay off these balances and don’t get yourself back in trouble.
If you’re in good credit shape and want to apply, call The Hero Loan Team in St. Louis at (314) 781-9700, Chicago at (773) 770-4727, Indianapolis at (317) 550-1515, and Nashville at (615) 810-8555.
You can always apply online with our 5-Minute Loan Approval at Hero Loan for your VA Loan, and we’re also open on Saturdays and will come to you to help close your loan. We work hard to make it easy on you. Nobody gets lower rates on better loans than The Home Loan Expert, Ryan Kelley, why go anywhere else?