Updated: May 30
As part of your preparations for buying a home, you must check your credit reports. Qualifying for a VA Home Loan and getting the lowest interest rates depends partially on your credit score. Before applying for a loan, check your credit score through the official Annual Credit Report.com website. You can check your scores once a year for free. Other sites like Credit Karma offer unlimited free credit reports and financial advice with a free membership. Also, check the entries in your credit records to be sure they are correct. If you find your score is lower than you would like or there are errors in your credit report, there are things you can do.
There are three main credit bureaus: Experian, Equifax, and TransUnion. A credit report contains your personal information like your social security number and address, credit accounts, and any public records like bankruptcies or foreclosures. The report will also have a history of any entity that has asked to see your credit report. The three reports from the three bureaus often differ slightly. To calculate your credit score, the bureaus consider your payment history, credit usage, age of credit accounts, credit mix, and information inquiries. Payment history and credit use count the most.
If you find that your records have information that doesn’t belong to you, you need to get that corrected. If someone else has the same name, for example, you could see one of his credit cards listed on your report. If employment or address information needs to be updated, do that. You’ll need to contact both the credit bureau and whatever company is reporting the incorrect information. Read about how to challenge information on your credit reports.
Pay On Time
Pay all your bills on time. This seems simple, but many people develop bad habits and sometimes pay car, utility, or credit card bills a bit late some months. Avoid late payments and late fees at all costs. If you have trouble paying your bills on time, figure out how to fix that problem.
File System: Set up a weekly bill-paying file system, for example. As bills come in, file them in the folder (electronic or paper) covering the week BEFORE the bill is due. Set a time and day every week to pay those bills.
Automatic Bank Payments: If you feel comfortable with automatic payments, set that up with your bank. Having your car payment automatically paid will help your credit records. Set up a minimum credit card payment. You can always send more separately, but your payment record will improve.
Automatic Credit Card Charges: Another option is to use your credit cards to pay regular monthly bills automatically. If you charge most of your expenses to a credit card every month, you build your credit card use records and may only have to concentrate on paying a few bills on time every month.
Pay Down Balances
One of the things lenders consider is your debt-to-income ratio. Your ratio improves by paying down your credit cards and car loan, and your credit score should come up. You should always pay at least the minimum payment on your credit cards, but adding a little to the minimum amount each month can improve your credit score. Do the same with a car payment. You’ll be surprised at the difference a few dollars can make. Give up your fancy coffee or pack your lunch once a week and add $25 to your credit card payment.
Don’t Open or Close Accounts
If you are getting close to applying for a loan, leave your accounts as they are. Don’t open new credit card accounts or close old ones, even if you don’t presently use them. The credit bureaus look favorably on old accounts you have paid off.
Keep an eye on your credit report and do what you can to improve your score if you want to buy a home. Read more about getting prepared to buy a house with a VA home loan.