A borrower’s credit score is the first thing lenders would check if they’re applying for a home loan in Tempe. That’s why it’s crucial for borrowers to have their credit scores reviewed even before they apply for a mortgage. But what are the most common misconceptions that borrowers have when it comes to their credit score?
Misconception #1: An individual needs a debt to build credit
Getting a credit card to rebuild your credit wouldn’t work the way you want it. If ever you max out your credit, that would hurt your account even more. Not only did you max it out, but you also have an existing debt to prioritize.
Misconception #2: Medical debt is different from other debts on your credit report
Credit bureaus treat everything fair when it comes to payments. Medical debt, for instance, is treated the same as everything else. Although you have to remember that medical bills only get reported if these were sent to the collection agency. The more recent the bills, the more it will affect your credit score.
Misconception #3: Credit repair companies can only remove discrepancies to improve your score
It’s true that credit repair companies can correct inaccurate information on credit histories. However, what many people are not aware is that they can also remove negative information. This doesn’t mean that credit repair companies can take illegal actions just to fix your score.
Under the Credit Repair Organizations Act, the law states that credit repair companies must disclose the steps they take on behalf of their clients at no cost. They also cannot give any guarantee, or else it will be a violation of the said act.
Misconception #4: Your utilization rate is unimportant
Utilization is a vital tool in the credit scoring system. To calculate its percentage, according to experts, you need to divide your credit card balances with your credit card limit. Afterwards, you need to multiply it by 100. The higher the rate is, the lesser points you’re going to acquire in that category.
These are only some of the misconceptions people have with credit scores. Making yourself aware of these can help avoid them better, boosting your credit score just in time for your mortgage application.