Don’t we wish that we lived in a universe where everybody had spotless credit and crazy cash to put down on a home. But we live in a real world.. So what if your credit report has more than a few blemishes and your lender cringes when he sees that debt collectors are knocking on your front door?
The good news is you’re probably better off than you think. Generally speaking, a credit score of 620 is enough to qualify for a FHA loan (Federal Housing Administration). Even if you’re a few digits off, you’re not automatically out of the home buying game. In fact, your dream of becoming a homeowner is more likely than not. Think about an FHA Loan.
Ever since the financial crisis of 2008, consumers have been inundated with the stories that even though interest rates are low, hardly anyone can qualify for a mortgage. After all, banks only pick the most squeaky-clean borrowers, right? Obviously that’s who they want. While it’s true that banks have tightened their lending standards over the past few years, there are always exceptions to the rule.
If you’re hoping to buy a home and your credit report is less than stellar, you’ve probably done some research on what you can do to clean it up. Unfortunately, many of the “tips” and “tricks” you’ve read on the Internet are not true. With this in mind, we decided to break down a handful of common credit report myths and set the record straight. Here are some big ones every homebuyer should know about:
Myth #1: Once your credit score is bad it can never be rebuilt.
Fact: Credit can be rebuilt over time. But that’s just it – it takes time. Late or missed payments can remain on your credit report for up to seven years. By consistently paying your bills on time, negative information will eventually become less significant.
Myth #2: Checking your credit reports too often will hurt your credit score.
Fact: Reviewing your own credit report results in a “soft inquiry,” which only shows up on a personal credit report. This has no impact on your credit score. In contrast, a “hard inquiry,” can affect your credit score. This happens when a lender pulls and reviews your credit report.
Myth #3: There is only one credit score that all lenders use.
Fact: The majority of creditors report their information to all three major agencies: Equifax, Experian, and TransUnion. Because these are separate companies, they don’t necessarily update their records at the same speed. Lenders typically look at all three credit reports when a homebuyer applies for a mortgage.
Myth #4: If you pay off a delinquent debt, the missed payment will be removed from your credit report.
Fact: Your credit report is actually a credit history. And, as we all know, you can’t undo the past. Paying off delinquent debt won’t delete the fact that it happened in the first place, but it will update the account to indicate it as “paid.”
Myth #5: Good credit is tied to how much money you make and the assets you have.
Fact: Your credit report doesn’t list information about your income, bank account balances, or assets like stocks or bonds. However, if you’ve ever bounced a check and didn’t pay the money back, that balance gets turned over to a collection agency. This is the kind of information that will show up on your credit report.
Myth #6: If you pay all your bills on time, you don’t need to check your credit report.
Fact: Even if you’ve never paid a bill past its due date, all of us should check her credit report at least annually. It’s part of good credit management. Plus, regularly reviewing your credit score will make it easier to spot a potential error.
Myth #7: The best way to improve your credit score is to pay off all accounts and close them.
Fact: This is half-true. While paying off your debts can be one of the fastest ways to improve your credit score, closing your accounts can actually hurt you. This is because closing accounts narrows the gap between your debts and your available credit. The more credit you have available that you’re not using, the more responsible you appear to lenders.