Veterans and military members can face unique credit and financial challenges given the nature of their service. That’s a big reason why the VA loan program features more flexible and forgiving credit guidelines than other loan types.
But there are still minimum benchmarks would-be buyers need to meet. Even military buyers with solid credit can benefit by investing time into boosting their score. Credit scores are fluid, and you have a lot of control over how yours rises and falls.
Let’s take a closer look at four strategies for improving your credit score.
VETERAN HOMEBUYER CENTRAL: Find out what your service can do for you.
Pay Bills on Time
FICO’s credit score breaks down into five big components. Payment history is the single-biggest contributing factor (35 percent) of your FICO score. Lenders want to see a solid track record when it comes to repaying debt.
The FICO scoring formula looks at your payment history for a host of credit accounts, including:
- Mortgage loans
- Credit cards
- Automobile and other installment loans
- Retail charge accounts
FICO makes it clear that a few late payments won’t necessarily tank your score, but everyone’s credit profile is different – and that means negative impacts can differ from consumer to consumer.
Mortgage late payments can be particularly devastating. FICO studies suggest a 30-day late payment on your mortgage could cause you to lose as many as 110 points from your credit score. A homeowner with great credit might need three years to fully recover from that type of hit.
Mortgage late payments can also keep you from getting a home loan. Some lenders will bounce applications from buyers who’ve had a late mortgage payment in the previous 12 months. Guidelines and requirements can vary by lender and loan type.
The bottom line: Don’t get behind on your bills. Making on-time payments can bolster your score.
Watch Your Balances
Racking up big balances on your credit accounts can hurt your score. It’s less about owing money and more about how much you owe each month in relation to your available credit.
There’s no magic number, but some financial experts recommend keeping your credit utilization ratio below about 30 percent. That would mean keeping balances below $300 on a credit card with a $1,000 limit.
Regularly paying down balances can help boost your credit score. FICO notes that in some cases carrying small balances could be better for your score than not using credit at all.
Secured Credit Cards
A secured credit card can be a great tool for building credit. Secured cards require an upfront deposit, often a minimum $300 or more. Unlike a prepaid credit card, creditors can report secured card activity to the credit bureaus.
Be sure to shop around and compare rates and terms when hunting for a secured credit card. These can be a powerful building block, but they’re also typically a better fit for a shorter time frame. Rates and fees can be higher for secured cards than standard credit cards.
Keeping a healthy credit utilization ratio and paying your bill on time every month can help bolster your credit profile.
Becoming an “authorized user” on someone else’s credit card is another simple strategy for improving your scores. Whether it belongs to a spouse, a parent or a trusted friend, look for older accounts with spotless payment histories and lower credit utilization. Plus, make sure the creditor reports authorized user accounts to the credit bureaus.
Getting added as an authorized user for a card entitles you to use it without being responsible for payments. This tactic also allows you to graft that sterling credit history onto your own credit profile.
As with secured credit cards, you might consider this a shorter-term strategy. Mortgage lenders will want to see you can establish credit on your own, not to mention follow through with on-time payments. But getting a secured card can be a great first step toward building a stronger credit profile.