A good credit score increases the chances of having a mortgage when it is time to purchase a home because it tells lenders or mortgage providers that you are willing to pay a loan on time. As a result, having a poor credit score can be a significant impediment to homeownership. This is why it’s always been crucial to know and manage your credit score.
Here, we expose the 5 myths about credit scores and reveal the truth for good. Because the worst time to learn that your credit score isn’t improving due to inaccurate details is when you’ve already set your heart on owning a slice of the American dream.
Fact: Only “hard” queries or “hard” tests will lower your score a few points; if you search on your own, which is called a “soft” check, your score will not be affected.
When you allow a lender or organization to verify your credit, such as when applying for a mortgage or credit card, hard checks are performed. This type of inquiry will lower your credit score for a short period.
Soft inquiries, on the other hand, have no bearing on your overall ranking. This is when you review your credit score and report from the 3 major credit bureaus on your own (Equifax, Experian, TransUnion). It’s a good idea to review your credit score regularly to keep track of your success when building credit and to spot any issues before they get out of control.
Many card issuers, as well as websites like creditkarma.com and annualcreditreport.com, make it simple to check your credit score. In addition, until April 2021, all three credit bureaus are providing free weekly online reports due to the COVID-19 pandemic.
Fact: Closing a credit card, particularly if it has a balance, is more likely to harm your credit score than to help it.
Note that a percentage of your rating comes from the duration of your credit history, so closing a card you’ve had for a while could hurt your score. The positive impact a credit card has on your credit score, the more you’ve used it responsibly. So, particularly if your accounts are in good standing and the card has no annual charge, keep them open.
Fact: The only thing that a credit card balance raises is the amount of debt you owe, not your credit score. In reality, it will just lower your ranking, and it will be a waste of money because you will have to pay interest over time.
This is because that any outstanding balances on your record have a direct impact on your credit card utilization rate. The higher your credit card balance, the higher your credit card usage rate, which can affect your credit score.
Fact: And after you marry, you and your partner are both two different individuals with separate credit ratings and backgrounds. So, just because you marry someone with good credit, that doesn’t mean your credit score will increase automatically. Similarly, marrying someone with poor credit would have no negative consequences for you.
When you submit a joint application for a mortgage, however, lenders will review and consider each of your credit scores. So if one of you doesn’t get a good grade, it could be a problem.
Fact: Your credit score is not affected by your salary. It is also never reported on credit reports, so it has no bearing on your credit score.
There are 5 different factors that will affect the FICO scores. These are payment history (35%), length of credit history (15%), credit mix (10%), the amount owed (30%), and new credit (10%). Good work with a good salary will help you change your financial situation. However, your credit score is determined by how you have handled credit in the past, and if you have a poor credit background, a good income will not help you improve your situation.
Before accepting your loan, lenders can look at your earnings and credit score separately if you’re applying for a mortgage.
Keeping on-time payments on any unpaid balances is the only thing you can do to boost your credit score, regardless of how much money you have or how much money you make.