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The home buying process can be confusing, but...

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If you have bad credit, there are things you can do to repair your credit. Your credit score is one of the factors that lenders use to determine what mortgage rate you qualify for when you are applying for a home loan. Your credit score is a three-digit number, generally ranging from 300 to 850. A higher score means you are a good credit risk and will probably qualify for lower interest rates on home loans. Here are some things our customers have done to improve/enhance their credit standing.

Five Steps to Help Repair Your Credit

There are a few steps you can take to increase or repair your credit score. These are important best practices to help you to improve, repair or maintain good credit. With a higher credit score, you can qualify for even better VA mortgage rates.

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  • Pay your bills on time! Your payment history affects about 35% of your score, so it’s important.
  • Check your credit report annually, because one out of every four credit reports contains a serious error that will hurt your credit. Finding and correcting such errors is a big factor in keeping good credit.
  • Develop a credit history by getting a credit card and paying it off responsibly. Just charging as little as $20 a month and paying it off monthly over six to eight months is a great way to establish credit.
  • Keep your credit balance low – at 30% or less of your credit limit. Maxing out your credit limit will hurt your score.
  • Show you can manage different types of debt – lenders like to see that you can successfully manage major credit cards, retail store cards and installment loans like a car loan.

Five Actions That Hurt Your Credit Score

There are a few things that are guaranteed to hurt your credit score, sometimes unintentionally. If you are trying to repair your credit, take note of the following actions that can decrease your credit score.

  • If you’ve only been managing credit for a short time, don’t open too many new accounts early on. New accounts lower your average account age, which could lower your overall score.
  • Don’t close old, unused credit card accounts. A card that you’ve held for years is better for your score than a new card. Just don’t use the old cards, and gradually close them out over time.
  • Don’t sign up for too many retail incentive cards. Your score is affected by the number of times credit card companies request your credit report, because it may look like you’re desperate for credit. That’s also why you shouldn’t check your own report too often.
  • Don’t open too many credit card accounts, because it probably won’t raise your score. The best mix is between secured loans – like home and car loans – and unsecured loans like credit cards.
  • Don’t shop too long for a loan. By all means you should shop for the best rates, but try to settle on a loan within a short period.

As you can see, even with the best of intentions you can inadvertently hurt your credit score, so be careful when it comes to safeguarding your credit. If your score is low, it’s important to work hard to repair your credit so you can take advantage of better mortgage interest rates.