One of our agents, Nicole McGann who sits down and interviews one of our partners Annie Mac Mortgage who can give you an idea about credit scores. Check out the video below:
In line with this, there are some credit-building myths that most first-time loaners are more aware of than the truth behind them. Here is the breakdown and what we know about it:
1. You need clear credit to be able to purchase a house
Your credit score may not be perfect but that doesn’t mean you can’t buy a house. There are loans
that are backed by FHA that needs a low score to be approved. Besides those options, you could find a co-signer or agree to make a bigger down payment that can help reassure the lender. There are also local state or county programs, and other assistance programs that might help.
Your score also determines the interest rate that you’ll pay on a loan. Ask your mortgage advisor how you can get your credit into the best position possible.
2. Occasional late or missed payments are no big deal
Late or missing bill payments happen to just about everyone, and therefore may seem like no big deal. However, paying your bills on time has a huge effect on your credit, making up 35% of your FICO score. It doesn’t matter how much credit you have, as long as you can afford to pay them in full and on time.
3. The amount of money you make and have in the bank influences your score
According to Lexington Law, Your income and bank balance aren't considered when it comes to credit scoring. Whether you make $30,000 or $100,000, your credit score can be just as high or low depending on factors like your repayment history, credit utilization, and the average age of your credit.
4. Close your credit cards once you pay them off or Closing accounts that I don’t use will help my score
Closing a credit card once you’ve paid it off may seem like a logical thing to do—that way, no more debt! Yet in reality, closing cards is a bad idea and we advise you to steer clear of these credit-building myths. On the other hand, closing an account you don’t use (like a student credit card after graduating) doesn’t boost your credit score. In fact, it usually lowers it.
Closing an account also increases your credit utilization—another factor that impacts your credit score. Your credit utilization rate is how much credit you’re using, compared to how much credit you have. A high credit utilization rate can negatively impact your credit score.
5. A bad credit score means you’ll never be approved for anything
You can still be approved by a lender even if you have a low score, but it’s likely you’ll be subject to larger down payments, shorter repayment periods, and higher interest rates.
In general, the terms and conditions for someone with a lower credit score are worse than for someone with a higher credit score.
6. Credit can never be rebuilt and a bad credit score lasts forever
The good news is that your credit can improve over time.
One possible way to work on your credit profile is to dispute inaccuracies. Many times there are errors on your report that harm you, and you might not even know they're there. You can work to drop these by making a dispute.
Thanks to the FCRA, you have the right to dispute errors found in your reports. When you dispute errors, the bureaus must investigate and respond within 30 to 45 days.
There are many credit-building myths out there and these are just a few. Consider speaking with a professional about how to best build your credit to purchase the home of your dreams.