5 Credit Myths

You're supposed to follow the financial fundamentals by paying your bils on time and keeping yourself out of credit dangers. When its time to rent, buy, or refinance, small credit score differences can cause your plan to fail. Knowing what to do will save you thousands of dollars on the lifetime of your loan. Here are five credit myths that you need to either write down, or remember when the time comes to make a property decision. 

Myth 1: Having mass amounts of cash, equity, a great income, makes your FICO score less relevant.

     truth: No matter if you eat cash for breakfast, your lender requires you to meet their FICO score for obtaining a mortgage. If you have plenty of cash, making your bills or payments shouldn't be a problem. But if you are coming from a financial rough patch, lenders don't look at your credit score on the theory that your other assets diminish your credit riskiness. The best predictor whether you will default on your loan is by looking at how you've handled your past credit. No matter how much you make, your credit score will determine if you qualify for a loan and how much your interest rate is. However, if you buy a house with all cash, you may be able to bypass the credit score.  Now if you take a hard money loan out, you will be required to put down a much larger down payment and rate.

Myth 2: Having no debt or late payments translates into a great credit score.

     Truth: Good credit differs from financial responsibility. Your FICO score measures your responsibility when it comes to debt management, given you have credit accounts. Having no credit accounts or late payments means you haven't established credit. On the opposite hand, maxing out credit cards and submitting credit applications all the time can decrease your credit score. The best practice is to have a few credit accounts, but it is imperative to manage them responsibly.

Myth 3: Checking your own credit score in advance prevents any surprises when you apply for a loan.

     Truth: Your broker or banker has your credit score from a different source. they get your score and it may be a different number, rating scale, or line items. This is why you need to start working with your broker or banker as soon as possible to fix any errors you may run into along the way.

Myth 4: Your credit score will be damaged for seven years if you've had a foreclosure or short sale.

     Truth: Short sales, foreclosures, late mortgage payments do appear on your credit score for seven years, but you have the power to heal that score within that time too. The loan for your next home can vary from an immediate purchase to a waiting period for several years, even after you've already lost your previous home. Your FICO score is a key criteria in a post home loss 'buy', but the time it takes to get your FICO score back up depends on how high it was before hand. It all depends, just ask your broker.

Myth 5: Short sales have much less impact on your credit score than foreclosures.

     truth: They have the same impact, and that is the truth!

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