Many people believe certain things about credit and mortgages that are not true. Here, we will address common credit myths in the mortgage industry.
Myth: You Need Perfect Credit to Get a Mortgage
Reality: Many lenders offer mortgage options for borrowers with less-than-perfect credit which include FHA and VA loans. Many think you need perfect credit to get a mortgage. However, this is not true. Lenders offer options for those with less-than-perfect credit. Undoubtedly, FHA and VA loans are great examples. These loans help people with lower credit scores buy homes. So, don’t worry if your credit isn’t perfect. (Learn about “Homeownership with Low to No Down Payment Options!”.)
Myth: Closing Old Credit Accounts Will Improve Your Score
Reality: Closing old accounts can lower your credit score by reducing your overall credit history length and available credit. Some believe that closing old credit accounts will boost their score. In reality, it can do the opposite. Alternatively, closing accounts reduces your credit history length and available credit. Both factors can lower your score. Definitely, it’s better to keep old accounts open and manage them well.
Myth: Shopping Around for Mortgage Rates Hurts Your Credit Score
Reality: Multiple mortgage inquiries within a short period are usually treated as a single inquiry which minimizes the impact on your score. Many fear that shopping around for mortgage rates will harm their score. However, multiple mortgage inquiries within a short period are usually treated as one inquiry. It should be noted that this period is typically 30-45 days. So, you can shop around without worrying about your score dropping.
Myth: A Higher Income Equals a Better Credit Score
Reality: Income level does not directly impact your credit score. A common misconception is that higher income means a better credit score. However, income level does not directly affect your score. Credit scores are based on credit history, payment behavior, and debt levels. Therefore, focus on managing your credit well regardless of your income. (Get insights by reading “Improve Your Credit Before Applying for a Mortgage”.)
Myth: You Should Avoid All Debt Before Applying for a Mortgage
Reality: Lenders look for a history of managing credit well. Some believe they should avoid all debt before applying for a mortgage. This is another myth. Having a mix of credit types and managing them responsibly can improve your score. Indeed, lenders look for a history of managing credit well. Unquestionably, having some debt isn’t necessarily bad. (Discover and learn about “Debt Consolidation: Paving the Way for Your Retirement”.)
Myth: Removing a Disputed Account Will Raise Your Score
Reality: Removing a disputed account can sometimes lower your credit score depending on how the dispute is resolved and the account’s impact on your overall credit profile. Also, people often think removing a disputed account will raise their score. However, it can sometimes lower your score. It depends on how the dispute is resolved and the account’s impact on your credit profile. Indeed, it’s important to handle disputes carefully.
Myth: You Cannot Qualify for a Loan with Collections or Charge-Offs
Reality: It’s possible to qualify for a mortgage even with collections or charge-offs on your credit report. That is, if you have a strong recent credit history and other positive financial factors. Many think they can’t get a mortgage with collections or charge-offs. But, it’s possible to qualify even with these on your credit report. A strong recent credit history and other positive financial factors can help. Definitely, lenders look at the overall picture.
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Takeaways
In conclusion, it’s important to understand the truth about credit myths in the mortgage industry. Importantly, knowing the facts about credit myths in the mortgage industry can help you make better financial decisions. Indeed, always do your research and consult with professionals to get accurate information. (Learn more by reading “Choosing The Right Mortgage Lender: Five Factors To Consider”.)