Credit scores play an important role in every large financial decision or investment, like buying a home. It helps determine whether you qualify for a mortgage and what interest rate you receive. In many ways, it’s the gatekeeper between you and your financial goals. That’s why it’s important to know what’s true and what’s not true when looking at your credit score.
Don’t let incorrect information about credit scores deter you from your goal of homeownership. Here are nine myths and facts that you should know before applying for your new home.
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Closing out old, active accounts will help your credit score.
FACT – Your credit score is partially based on your length of credit history and your utilization rate. By closing old accounts, you can make your credit history appear shorter and as a result, actually decrease your score. It can also reduce the total amount of available credit, which can also affect your score.
Opening (but not using accounts) will help your score.
FACT – Your credit score is affected by how well you manage the credit you do have over a period of time, not by how many credit cards you have with available balances.
You should avoid using your credit cards at all.
FACT – If you’re not using your credit, you’re not building credit history. Use your credit cards from time to time and promptly pay off the balance.
Dispute letters can clean up your bad credit.
FACT – Dispute letters may force the removal of negative items temporarily, but once the lender can prove the record’s accuracy, it will reappear on your credit.
Paying off old debts and judgments will help your score.
FACT – Don’t expect a “negative” to disappear by paying it off. Negative records remain on your credit for 7 to 10 years, regardless of any remedies you made.
Credit inquiries hurt your score.
FACT – Inquiries alone do not make a big enough change in your credit score to make a difference when it comes to lenders.
Using a credit counseling services lowers your score.
FACT – Credit counseling services no longer figure into the FICO scoring system. So although your report might indicate you are receiving credit counseling, using those services won’t lower your score.
There’s a set formula for obtaining great credit.
FACT – Credit is a very individual thing. Credit scores look at everything and take it all into account.
You can get a perfect credit score.
FACT – Getting a perfect score of 850 is nearly impossible. Your credit score is a reflection of your credit risk, regardless of your credit history. There is always a risk.
Understanding what affects your credit score can prepare you for buying a home and possibly get you a better interest rate. Learn more on our Mortgage Resources page or contact us to get in touch with one of our mortgage professionals today!
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Park Square Home Mortgage, LLC (“PSH Mortgage”) works directly with Park Square Homes for fast, reliable mortgage services. PSH Mortgage offers a wide array of competitive mortgage products with experience in every area of residential mortgage lending. We focus on providing our customers with industry best service and use cutting-edge technology to help you navigate through the lending process with ease.
Few things give you more pride than owning your own home – you will probably make no greater single investment in your lifetime. PSH Mortgage wants to help you make that dream come true. Contact us today and put our expertise to work for you! All information presented is for educational purposes only and not intended as financial advice.