Smart Military Money
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Knowing what your score consists of goes a long way in improving your score.
Your credit score ranges from 300 to 850. Although the exact formula for calculating the score is proprietary information and owned by FICO, here is an approximate breakdown of how your credit score is formed:
Thirty-five percent of your score is based on your payment history. This is mainly for lenders to see the risk involved with giving you a loan, checking how well you have paid your bills in the past. Your score will be affected by paying bills late, not paying bills at all, how many bills have been sent to collection agencies, and if you filed bankruptcy in the past. Like anything, it takes time for these to go away and can affect your score for years after they have taken place.
Thirty percent of the score is based on how much debt you currently have. This involves the utilization rate. Your utilization rate is the ratio of how much credit you have to how much you have used. To keep this from affecting your score try to keep your credit card balances below 25 percent of their credit limits.
Fifteen percent of your score is based on how long you’ve had credit. Banks are more willing to lend to those who can show a more complete payment history.
Ten percent of the score is based on new credit. Opening new credit accounts negatively affect your score for a very short time. This 10 percent also includes inquiries. Keep in mind that there are two types of inquiries, hard and soft inquiries. A hard inquiry is you giving a lender permission to submit your information for a loan, and can negatively affect your score if there are multiple hard inquiries in a short amount of time, while a soft inquiry is purely informational and has little to no effect on your score.
Ten percent of the score is based on the types of credit you already have or have had in the past. Having different credit accounts shows you have experience with credit.
It is always important to remember what goes into your score and how your actions can affect the score. It is also a great idea to check your credit report at least once a year to check for fraudulent charges and identity theft.
Photo thanks to Robert Scoble under a creative commons license from Flickr.
14 Comments
I am a Navy veteran that is very interested in getting a VA Home Loan. I am curious as to what steps I need to do in order to get a VA Home Loan. I already have a certificate of eligibility for a VA Home Loan. What banks accept VA Home Loans? In the past I have tried to get a loan through a credit union, but I wasn’t accepted. What do I need to have in order to be accepted for a VA Home Loan? If, you could please send me more information on VA Home Loans, I would really appreciate it!
Thank you for your time.
Great question Jessica! You’ve already acquired your COE, so you are on your way. The next step is to contact a VA approved lender. I recommend a VA loan specialist like Veterans United. Veterans United makes it simple by having the process streamlined and they even have a database of military friendly real estate agents. Your can reach a Veterans United specialist at (800) 405-6682!
i would like to find out if my husband can get another v.a. loan. he had one in 1980 but we lost it. can we be able to get another one through them?
The best thing about the VA loan program Sandra, is that you can use your benefit multiple times if the original loan has been paid off or has been transferred to another payee. Give us a call at 888-212-1958 and let one of our specialists double check your eligibility.
I paid off everything on my credit that was bad last month cost me 11k, it was all back from 2006/07, credit had gone down to a 590 ish. how long will it be before i can start seeing a increase in my score so i can possibly buy a home?
Great to hear you paid off everything! Credit takes time to grow. Main things to help maximize your credit score quickly are 1) Don’t go over 25 percent of your credit utilization ratio. This is the ratio of credit you have to credit used. And this isn’t only for your balances as a whole, but can be as specific as each individual credit card. If one credit card has 50 percent of the credit limit and another has zero, even though it averages out to 25 percent, the 50 percent on the one card will hurt your score. 2) Set up automatic bill pay. This makes sure you’re essential bills are paid on time and cleans up your payment history.
Remember to be patient, because it takes time for your credit to grow; however, since you paid down a chunk of your bills, you should see a jump fairly quickly since your credit utilization ratio will swing to your favor, depending on how much outstanding debt you have. Be sure to check your credit at least once a year as well. Good luck in getting your home and if you need any help securing your VA loan, contact VA Mortgage Center at 888-212-1958!
Can someone tell me the difference between ones credit score and FICO score? Thanks
They are essentially the same thing. FICO refers to your score in general, while your actual credit score that can be pulled for review will include your FICO score as well as other personal information about you.
I have a credit score of 680 but owe 1500 on a credit card , when I pay this off im going to wait a few months until my credit score getss a little higher. Im deployed to afghanistan for another 4 months and have property in Massachusetts will i be eligible for a va loan to build a house. It will help that my dad owns a construction compay and has guys who build homes would this serve as an advantage.
It is possible Thomas since you already own the property. However, the builder must have the proper forms from the VA for this to work. Builders can find the forms here http://www.benefits.va.gov/homeloans/cavfaq_builder_id.asp
my husband and i paid our debts.. we had 4 credits cards and 1 small loan, they are on $0 right now. also we have a car loan but we still paying that one. someone told me that if the credits cards are on 0 that also afect the score. and what will happend if i close at least the 2 of the credit card an the loan???
Your length of open credit affects your credit the most so closing your oldest card will negatively affect your score the most. Closing credit cards also lowers your available credit and raises your credit utilization rate because of it. It is better to make small purchases every month and pay it off right away to show you are using the cards and making payments on time. You don’t have to carry a balance, just show activity and that you can use credit responsibly. Another factor in your credit score is the mix of credit. A good mix is revolving credit (credit cards) auto loan and mortgage. Above all make payments on time and avoid collections.
Credit Karma is a great place to get more info on improving your credit score and you can also monitor your credit for free there. I started off three years ago with no credit (never used or thought I needed it) to following their advise and qualifying for a car loan one year later and a home loan through the VA two years after that. Lots of good advise there.
When you say, “credit cards are on 0″ do you mean there is no outstanding balance to be paid? Please clarify so I can better answer your question. Closing credit cards usually isn’t necessary. Depending on the agreement, it may even cost you money to close the account. It’s best to pay off a credit card in full so there’s no balance and just leave it open. Even if you’re not using the card, having that paid off balance on your credit report helps your score.
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