Crediting scoring is one of the most important factors in the beginning of the mortgage process. Most mortgage professionals can get you through the process from beginning to end but may not always be knowledgeable of credit-scoring. Your credit score will determine how the loan will progress, whether or not it is granted and on what the terms will be.
Myth #1 – A higher salary means a higher score
A person’s salary plays no role in determining their credit score. A large salary could also come with a large debt. Most important, are their debts paid on time and how large are their debts versus their available credit?
Myth #2 – Closing your accounts will increase your credit score
Closing your lines of credit will actually hurt your score. Your credit score is partially factored by available credit versus used credit and also the length of time you’ve had credit. So it will not help you to cancel the credit cards you’ve had for years with available credit, these cards are actually offsetting the debt you have. However, if you have 7 credit cards and no balance on any of them it’s probably best to get down to 3 or 4 cards this way the potential for debt is reduced.
Myth #3 – Maxing out your credit cards will improve your credit
This is the opposite of myth #2 and also one of the worst things you can do. Maxing out your cards will eliminate all your available credit. You’ll want your credit card balance to be about 1/3 of your line of credit, so if your limit is $1000 try to keep the balance near $300 or less.
Myth #4 – Checking your credit will hurt your score
Viewing and requesting a credit report does no hurt your score. Applying for credit is the inquiry that counts especially if you are applying for several lines of credit in a short period of time. If you are shopping around for a mortgage loan do so within a 45 day period of time as it will be considered 1 inquiry to obtain credit.
Myth #5 – Married couples have merged credit scores
Simply put, everyone has a separate credit file and therefore a separate credit score. However, if a couple has a joint account it will show up on both credit files. If one spouse has a poor credit score the best thing to do is have them removed from the application and generate a new one.
Myth #6 – Disputing information removes it from your credit report
It is important that you should file a dispute against incorrect information, especially if it has been confused with another person’s line of credit, possibly with the same name. You should however refrain from filing a dispute against information that is simply unfavorable to your credit score in the hopes that there will not be an investigation.
Not every credit score can be easily improved, but in any case:
- Keep number of credit cards to a minimum
- Pay your bills on time
- Keep your credit balances at 30% of your available credit