Understanding Your Credit Score & 6 Simple Ways to Give It a Boost

What Is a Credit Score?

A credit score is a number that is intended to represent a person’s creditworthiness, or how they handle debt and how likely they are to pay back that debt. Credit scores range from 300 to 850, with 300 being the lowest score and 850 the highest and best score. The average person’s credit score ranges between 650 and 720. 

Credit scores are closely monitored by several credit bureaus, who report a person’s score to banks and other lenders, upon request. These credit bureaus generate a person’s credit score based primarily on the following factors:

• Payment History (percentage of payments made on time)
• Credit Card Use (how much credit a person uses compared to their total limits)
• Derogatory Marks (collections, tax liens, bankruptcies, or civil judgments)
• Credit Age (average age of all open credit accounts)
• Total Accounts (total open and closed credit accounts)
• Hard Inquiries (number of times you’ve applied for credit in the past two years)

In order to have a good credit score, you will want to ensure that you pay attention to the above factors and establish good credit habits over time.

What Is a Good Credit Score?

A good credit score is generally one that is 700+. Having a good credit score will not only qualify you for additional credit accounts but it is also a metric used to determine your interest rate, especially for home loans.

That being said, credit scores often fall into ranges consistent with the average FICO scores:

• Excellent: 800 to 850
• Very Good: 740 to 799
• Good: 670 to 739
• Fair: 580 to 669
• Poor: 300 to 579

What Score Do I Need for a VA Loan?

There is no minimum credit score required by law when obtaining a home loan, rather each lender sets their credit score requirements based on industry rates, economic circumstances (such as the federal reserve interest rate), and history of repayment by past borrowers. In order to recoup their investment in a home loan, a lender must be confident that a person will pay back that loan.

As of April 20, 2020, Hero Loan’s minimum credit score for obtaining a VA Loan is 680. 

This means that if your credit score is above 680, then you will likely qualify for a VA Loan through Hero Loan. The higher your credit score, the better your interest rate will be. But what about those people whose score is under the 680 threshold? 

How Do I Boost My Credit Score?

Boosting your credit score does not have to involve solving equations or for you to possess advanced knowledge of finance or economics. That’s for the credit bureaus to figure out, as they apply their mathematical algorithm to your credit history. 

Here’s what you can do today to boost your credit score and give yourself a better chance at qualifying for that VA loan:

Make On-Time Payments

One of the most important things you can do to boost your credit is to make payments on-time and, when possible, in full. This will not only help you avoid paying fees and incurring additional interest on your accounts, but it is the easiest way to help your credit score bounce back from a history of slow or late payments.

Set Up Auto-Pay on Your Utilities & Cell Phone Bills

If you have utilities or a cell phone in your name,  a great way to boost your credit score is to put these regular bills on auto-pay. These types of payments are great indicators to the credit bureau that you are using best practices regarding your credit, and can help give you that boost you need to reach the threshold for a VA home loan.

Pay Off Debt and Keep Balances Low

Just because you have a high credit limit does not always mean you should be utilizing it. Keeping a low balance on your credit cards is another quick way to raise your score. This may require paying off existing debt, which will not only boost your score but also lower your income-to-debt ratio, allowing you to qualify for a larger home or one with a few of the extras you’ve been wanting.

Don’t Open Any New Accounts

If you are already struggling with a low credit score, it is probably a good idea not to open any new accounts. Not only will these appear as credit inquiries on your account, but they will also provide you with new methods for lowering your credit. 

That being said, if you only have one or two credit accounts, you may want to consider opening an additional one, to ensure that you have enough credit metrics to count towards your score.

Don’t Close Unused Credit Cards

Whatever you do, do not close an existing credit account! 

Part of your credit score is the age of your credit, meaning if you have an old credit card you opened a while back but you’re not using, keep it open, as it is the beginning of your credit history and closing it will shorten your history and likely reduce your credit score.

Of course, if you have accounts that you are using that have annual fees, it can be a good idea to close them to avoid those fees. But for those accounts without included fees, make sure to keep them open, even if you’re not currently using them.

Monitor Your Credit

Make sure that you are monitoring your credit regularly. This will not only show you changes in your credit based on your newly developed habits, but it will also show you any potential inaccuracies or fraud that may take place on your accounts.

There are many free credit monitoring services available to help you do this. Just make sure that once you set up credit monitoring that you make sure to check it regularly so that you can report and remove any problems with your credit that you are not responsible for.

Getting a VA Home Loan

Now that you have the tools to boost your credit score, you’re on your way to not only a high score but also a great interest rate on a VA Loan through Hero Loan. Let us help you get into the home you’ve had your eye on, and be able to afford to do so.