Credit scores! The truth, the myth, and can it help you secure a better deal?
The credit score range is 300 to 850. Depending on how you manage your debt, liabilities, payments, and other items will determine your score.
80% of purchases are done with credit AKA a loan. Credit matters for the average person. Because it can make a difference with rates, terms, qualifying, and how much something will cost you. Understanding what makes up a credit score, how it gets impacted, how you can clean it up and how can you boost your score can make all the difference.
What are the 5 factors of a credit score?
Payment history 35%, amount owed 30%, length of payment 15%, new credit 10% and credit mix 10%. As an example, missing a payment or maxing out your credit cards has the BIGGEST impact on your score.
Are free credit reports accurate?
This is a question I get all the time and the answer is yes and no.
The yes is the FREE report should give you an accurate breakdown of your report, liabilities, balances, payment history, and overall picture of your credit profile.
The NO is the score that is usually NOT accurate and often shows a much higher score than when you get a hard pull from a lender or creditor.
I would never use a FREE credit report score as a basis of what terms, rates, loans, etc I would qualify for, I would always go off what your lender/loan officer pulls.
Soft pull vs hard pull?
Soft pulls most likely do not show as an inquiry and do not have an impact on your credit score. The great news about soft pulls is that if you are getting pre-approved for a mortgage I can pull a soft pull and still run you through the automated approval system. You will not get the 50 to 100 harassing phone calls from other lenders.
Hard pulls are the real deal because they will give the best score, and updated information on your balances, and payment history and that is what lenders use. The first pull can impact your score by 3 to 5 points and if you are shopping around for a mortgage and have to pull again you will not keep getting dinged.
Credit Score Myths:
- There is not one credit score, but there are 3.
- CO-signing is good it can hurt you if done wrong and you can get hit with debt for 12 months.
- Carry a higher credit card balance will help you, no more like NOT help, stay under 30% of the limit
- Closing old credit cards can boost your score. The opposite is to keep those old CCs you have. They have all the history which is great for your score.
- Opening new credit will help your score, but actually in the short term will impact you. Avoid this when buying a house.
- “Higher income will help your credit score!” Income has nothing to do with it, and payment history and credit limits will help or hurt, nothing to do with income.
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