Having bad credit can considerably limit your San Diego VA loan options. Though VA loans don’t require a minimum credit score for approval, the borrower must have a responsible credit history. Furthermore, most lenders will require a minimum score of 620 to 640. If your score falls below the minimum, it will be more difficult to acquire a VA approved loan. In this case the question becomes, what is the most efficient way to improve your credit?
How Credit Scores Are Determined
The Fair, Isaacs Corportation, popularly known as FICO, developed a universal algorithm for measuring credit worthiness. It is used by all the three major credit rating agencies to determine a score. The algorithm is based on the following categories:
- Payment History 35%
- Available Credit 30%
- Length of Credit 15%
- Types of Credit 10%
- Credit Inquiries 10%
Payment History and Available Credit: The Two Most Important Factors Affecting Credit Scores
Payment history is the most heavily weighted factor in calculating a credit score. The algorithm looks for any late payments and their length of time. Late payments are noted in 30 day increments. Payments past the 60 and 90 day marks will hurt your credit score more than payments past the 30 day mark. This category of your credit accounts for more than one third of your credit score.
Available credit accounts for 30% of your overall score. It is defined as the available amount of credit you have in relation to the total. This amount is calculated as a percentage. The ideal percentage of credit balance in relation to overall limit is about 70%. It’s interesting to consider that having no credit balance at all or 100% available credit has a lesser positive impact on your credit score than maintaining a credit balance of 30-50% of available credit. It gives the lender a better idea of your credit performance if you are making regular payments on credit balances.
If your credit balance increases beyond 50% of available credit, it will begin to negatively impact your score. Even keeping your balance at 50% will cause scores to fall. A good rule of thumb is to maintain a credit balance that is less than half of total available credit.
We Offer California Veterans Free Credit Repair Services
At San Diego VA Home Buyers Center, we have decades of experience helping veterans repair their credit in order to secure optimal terms on their VA Loans San Diego. Get in touch to start a conversation on how to quickly improve your credit and get the loan you deserve. You can reach us seven days a week via email at firstname.lastname@example.org or by calling Dan Cauffiel at (619) 261-9954.