Your three-digit credit score is surrounded by a lot of misconceptions and misunderstanding. However, if you are trying to secure your financing with a mortgage lender it is important to know what they are looking for, even if you are working with a mortgage broker. And so, we are busting credit score myths to help you better understand those three digits.
What is a Credit Score?
To begin with, your credit score is a prediction that is based on the statistics of your credit risk at a specific point in time. The lower your score, the riskier you appear to a lender.
The Myths
Shopping for the best rate hurts your credit score
Reality: there are features built into credit scores that will identify a pattern, but there are no penalties for shopping for the best interest rate.
Credit cards must always be paid in full
Reality: While paying off your credit card in full every month is great, having a few cards and managing them well has a greater impact on your score. You should not exceed 35% of your overall credit limit.
Closing a credit account hurts your score
Reality: If you have closed a number of old accounts, your available credit decreases and your credit ratio would increase, but closing one account will only have a minimal effect.
Making frequent inquiries about your score negatively affects it
Reality: This is true if you are trying to get credit from a number of sources in a short amount of time (like several credit cards). However, if you are just asking for a copy of your credit report, there will be no impact on your score.
Credit scores are unfair
Reality: Credit scores are generated objectively using tools and mathematics to provide an unbiased assessment. Still unsure about your credit score and how it will affect your mortgage application? Talk to your mortgage broker to find out what lenders are looking for. Not only will you better understand what credit means to lenders, your broker will shop over 50 lenders to find a mortgage solution for your exact credit situation.
