Myths About Your Credit Score
5 Myths About Your Credit Score
One of the biggest factors that goes into buying a home is your credit score. Your credit score is used to determine your “credit worthiness” and will affect the interest rate you receive on a loan, what type of loan, the amount of the loan, etc. Here are 5 credit myths that many clients have questions about. Knowing the truth behind these myths will help you stay on top of your finances before making what will probably be the largest investment of your life – your home!
MYTH 1: There is only one credit score
There are many credit sites that promise to give you a free credit score. However, not all credit scores are created equally. The credit score to focus on is your FICO score which is used by almost all lenders to determine your credit worthiness. Your FICO credit score ranges from 300 to 850 with 850 being a perfect credit score and will get you the best interest rates.
MYTH 2: Checking your credit report can hurt your score
There are two types of inquiries on your credit: a hard inquiry and a soft inquiry.
A hard inquiry is recorded on your credit report when you are trying to add a new line of credit and a lender will need to check your credit report. Having too many of these inquiries in a short amount of time can look fishy to many lenders and may indicate that you are seeking credit from many places to overspend.
A soft inquiry stems from when you are checking on your own credit report and it will have no impact on your credit score. So feel comfort in regularly checking your credit report – it’s a way to stay on top of your finances.
MYTH 3: Your credit report is permanent
Your credit report is a summary of information regarding your use of credit. A common belief is that the information found on your credit report is permanent, however, this is not true. Items that ding your credit score like late payments or accounts in collection will eventually come off your report in time. Your credit report doesn’t show each transaction you’ve had since opening your first credit account. Most scoring formulas show the most recent and most relevant information in your report. If there are items you believe are false, you can try to dispute them to increase your credit score.
MYTH 4: You can avoid credit problems by only using cash
Cash is great for smaller purchases in life. However for larger expense like a home, you likely won’t be able to pay in cash and will need a loan. Lenders will see you as a responsible borrower. Therefore, they will offer you better rates if you can show a history of financial responsibility. A good way to show this is keeping your credit utilization low and using credit wisely.
MYTH 5: You will never receive a loan if you have bad credit
Don’t worry if you have hiccups on your credit report. Even if your score isn’t at its best, that doesn’t mean you can’t be approved for a home loan. There are multiple avenues you can take, however they probably won’t consist of the best interest rates. Just remember, it’s never too late to take responsibility of your credit. Our team is happy to put you in touch with one of our trusted partners.
If you have more questions, please contact Minteer Real Estate Team. We’d be happy to point you in the right direction for getting started in your home buying process.