SOME MISCONCEPTIONS REGARDING CREDIT
Almost every day I somehow get involved with having to explain to customers and potential customers, the importance of having and maintaining a good credit rating. In recent years, most of us have gone through some sort of situation where our credit rating (good or bad) was threatened or jeopardized in some way. Most of us are pretty well informed about credit ratings and how they work. Many times a day, we hear about identity theft and how it can hurt your credit rating. With all of this said, I thought maybe I could clarify some misconceptions regarding credit and credit reports. The subject is important to me as it affects my business and my customers and potential customers.
If you are about to purchase a home, refinance your present home, rent an apartment or home, then you know how important your credit rating can become. Relatively small credit score differences can keep you from getting into that apartment or from buying that home you have dreamed about.
Here are 5 myths regarding credit:
1 MYTH: Having a lot of cash, or savings in the bank, or having a good job and good income, or even lots of equity in your home will make your FICO score less relevant when you apply for a new loan for a purchase or for refinance purposes.
FACT: No matter how much cash or savings you might have, or how much money you make, if you want a real estate mortgage loan, you must meet the mortgage lender’s FICO score guidelines, and those guidelines are getting tougher and tougher all the time.
2 MYTH: If you have no debt, or no late payments, then your credit rating or score should be good.
FACT: Don't confuse financial responsibility and good credit, they are two different things. Having no credit accounts or debts doesn't give you good credit - it only gives you no credit.
3 MYTH: If you check your own FICO score prior to filling out a loan application, it will help you because you won't have any negative surprises.
FACT: The originator of your real estate mortgage loan, whether it is a Mortgage Broker or a banker, must pull a credit report on you from their own credit score provider and the score maybe different from the one you saw when you checked your FICO score, and it may even have different detailed line items than the one you saw.
4 MYTH: If you have had a foreclosure or a short sale on your credit record, your credit report will be damaged for at least 7 years, making it almost impossible to get any credit, especially for a mortgage loan.
FACT: Derogatory or negative credit items, like late mortgage payments, foreclosures and short sales, appear on your credit report for 7 years, however, your credit score can be rehabilitated enough to be able to buy a home or obtain other credit in less time, depending on your particular circumstances.
5 MYTH: Having a short sale that shows up on your credit report is better than having a foreclosure show up on it.
FACT: According to the Credit Reporting Agencies, short sales and foreclosures will have the same impact on your credit score. Of course, like everything else there are exceptions and your own particular circumstances will determine which way the agencies will rate you.
In summary, it is best to have a few good open accounts, and to keep the payments up and current at all times.