3 Tips To Improve Your Credit Score
Grades are essential when you’re in school, but there are very few rating systems to tell you how you’re doing as an adult. Aside from your bank account, your credit score is the best way to measure your financial prowess. A credit score is a number that represents the creditworthiness of an individual. A credit score scale is between 300–850 that depicts. The higher the score, the better a borrower looks to potential lenders. A credit score is based on credit history, the number of open accounts, total debt levels, repayment history, and other factors. Lenders use credit scores to evaluate a person's likeliness of paying back their debts. Credit scores are essential for most loans, including home loans. If your credit score is failing you, here are three tips to improve your credit score and turn things around fast.
Improve Your Credit Score In 3 Steps
When applying for a U.S. Department of Veterans Affairs (VA) loan, your credit score matters. While the VA itself doesn’t set a minimum credit score, lenders may have their own policy to protect their interests. Many mortgage brokers require the home buyer to have at least a 620 credit score. Your credit score is an integral part of your financial life, especially if you want to purchase a home. It's critical to know your score and take any necessary steps to improve it. Here’s how.
Pay Bills On Time
While it’s apparent that you should pay your bills on time, things can happen that make doing so impossible. If you’ve gone through some hard times and have late payments on your credit report, it could haunt you for well over seven years. Every month you miss a payment will hurt your score. If you’re able to, start making payments on time consistently. Although it may take a few payment cycles to make an impact, your credit score will steadily rise with each on-time payment.
Lower Your Credit Utilization
Your credit utilization is how much debt you’ve acquired versus your credit limits. For example, if your credit card limit is $10,000 and you’ve charged $1,000, you’ve utilized 10% of your credit limit. A good guideline: The less credit utilization you have, the better. The highest scorers use less than 7%, according to NerdWallet. You want to make sure your balance is low when the card issuer reports it to the credit bureaus, so aim to pay down the balance before the billing cycle ends.
Add To Your Credit Mix
While it seems counterintuitive to say, “Improve your credit with more credit,” having a variety of credit accounts can actually do a lot to boost your score. If you only have a car loan but no credit cards, consider adding a credit card to buy things like gas which you can pay off every month. If you don’t have a term loan, like a car loan, consider it (if you can afford it!). A new credit account will improve your mix, but it will also open up your credit utilization.
Why Your Credit Score Matters
While it may be tempting to avoid thinking about your credit score, this is one time when ignorance is not bliss. A poor credit score can prevent you from doing the things you want to do, like purchasing a home. When your credit score is in the green, you have more opportunities. Plus, when you pay bills on time and have less debt, you’re in a better financial position to afford a mortgage.
Moreover, having a good credit score means you'll qualify for lower interest rates, which is especially important right now as mortgage rates inch over the 5% mark. Lower interest rates mean lower payments each month.
So, boost your score by paying your bills on time every time, lowering your credit utilization, and adding to your credit mix. Although it can take some time and effort, raising your credit score isn’t too tricky. Use these tips, be consistent, and monitor your score over the next six months.
If you're ready to start your VA loan, check your eligibility with MHS here today.