A lot of people will check your credit score when purchasing a home, so in this blog I’m going to debunk some common credit myths and help you understand your credit score so that you can know where you’re at regarding future financing options (and where you want to be) before you start your house hunt.
When it comes to building credit, there are many common myths and misunderstandings, so first I want to go through what’s true and what’s false about credit ratings and your individual credit score.
I can get both a credit report and credit score for free. This is TRUE!
Some services partner with the major credit agencies to get you a free score - Borrowell, Credit Karma and Mogo are a few. Credit reports from Equifax and TransUnion are also free.
Checking my own credit score won't impact it. This is also TRUE!
In general, running your own credit does not negatively impact your score. It's the hard inquiries that make an impact - the ones lenders run when you apply for a credit card, a mortgage or other loan.
When I pay off my debt, it'll disappear from my credit report. This is FALSE!
Paid debt will remain on your credit report for several years, and if it was paid on time, it can boost your score. Negative information can hurt, sticking around for 6 to 14 years depending on the circumstances.
With a promotion and a better salary, my credit score will go up. This is FALSE!
Income and job title may indirectly affect your score, but salary is not factored into your report. Still, heads up - lenders may ask about your employment to determine how likely you are to pay your debts.
Closing my paid-off unused credit card is NOT going to help my credit score. This is TRUE!
It may actually pay to keep it open, because closing an unused card reduces your amount of credit, and limits your credit history- which can sometimes lower your credit score. But if that credit card is tempting you to spend, I’d recommend closing it!
My spouse and I can run a joint credit report. This is FALSE!
Each individual receives their own credit score. So if you have any joint accounts and shared loans, they may impact each of your scores because they will appear on each of your reports.
Now that we’ve debunked some common credit score myths, let’s look into a breakdown of what the different levels of credit score ratings mean, and how they can affect your potential financing options.
Excellent Score: 760-900
Guaranteed financing approval
Best interest rates
Most savings on interest payments
Good Score: 725-759
Mostly guaranteed financing approval
Decent interest rates
Make a plan to reach excellent credit for the best rates
Average Score: 660-724
Mostly guaranteed financing approval
Okay interest rates
Build up toward good credit to save on interest rates
Poor Score: Below 660
Not likely to be approved for financing
Work to get credit score back on track
Now that you know what your credit rating is, you might be wondering how your score is actually calculated. Here is the exact percentage breakdown of what’s considered when calculating your FICO credit score:
35% Payment History
30% Amounts Owed
15% Length of Credit History
10% Types of Credit in Use
10% New Credit and Recently Opened Accounts
In conclusion, your credit rating is a very important factor when it comes to getting approval for financing your new home. And now that you have a greater understanding of what a credit score is, how it’s calculated and where you’re currently at- you’ll be able to better plan for where you want to be regarding future financing options.
Are you looking to buy a home in Dunnville/Haldimand County? Send me an email and I can help answer any questions about who can support you with your credit score in this area. Contact me, Phone 1-905-229-9500. Elsie Jungas, REALTOR #creditquiz #creditscore