Whether your annual earnings range well into six figures or they are on the more modest end of national salary average, you know you will probably need credit to buy a home. While you likely know how important credit is to your home-buying plans, you may not be aware of the truth behind some common credit myths.
Myth: If your bills are paid and you have never defaulted on a loan, mortgage or credit card bill, you do not need to worry about your credit report or credit score.
Truth: Many factors influence your credit score, and payment history is just one of them. When calculating your score, credit bureaus also consider length of credit history, types of credit used and ratio of credit available to credit used. Even if your payment history is good, scoring lower on one of the other factors could lower your overall credit score.
Myth: As long as you know your credit score, you do not need to look at your credit report before applying for a mortgage.
Truth: A lender will certainly look at your credit report, so you should know what is on it before they do. Errors may occur on a credit report, and if there are any negative marks on your credit history you will want to know about them – and address them – before a lender asks.
Myth: Checking your credit score is a hassle, and it can not really help you manage your credit in the long run.
Truth: Websites like FreeCreditScore.com make it easy to check your credit score. Keep in mind that lenders use a variety of scores when evaluating credit worthiness, and the one you obtain online will vary from what a lender might see. Still, any score can be a valuable educational tool that helps you better understand how lenders view your credit.
Myth: If your credit is not perfect, you will not be able to get a mortgage.
Truth: Lenders are stricter than they have been in the past and a good credit score and report can certainly make you a more appealing prospect to them. However, a score in the lower range does not mean you can not get a mortgage at all. But a higher score is likely to net you more options – and better terms.
Myth: When you apply for a mortgage, the lender could share your personal information (including your credit score and history) with other companies.
Truth: The law limits how banks and other financial institutions can use your information and to whom they can disclose it. If you are not sure how a lender may use your information, ask. Depending on the situation, you may be able to limit disclosure of your information. Home prices and interest rates are still low across the country, making it a good time to buy a house, real estate experts say. Knowing the truth behind some common credit myths – and understanding your own credit history and score – can help you take advantage of the many opportunities still available for home buyers.