Credit scores may be one of the most mysterious and misunderstood aspects of the home loan process. They’re also among the most important factors that determine whether you’ll be able to qualify for a specific loan product. That’s why you should educate yourself about credit scores and understand these facts:
Myth: You have only one credit report and one credit score.
Fact: You have only one credit history - yours. But you probably have at least three credit reports and three credit scores generated by the three major credit bureaus, Transunion®, Experian® and Equifax®.
Myth: The biggest factor in determining your credit score is the number of inquiries from creditors that appear on your credit report.
Fact: Your credit score is determined by several factors, and the number of inquiries is just one small piece of the credit score puzzle. The factors that determine your credit score include payment history, amounts owed, length of credit history, new credit (including number of recent credit inquiries), and types of credit used.
Myth: Too many "soft" inquiries can hurt your credit score.
Fact: "Soft" inquires made by companies that might want to offer you credit in a promotional manner have no effect on your credit score. Nor does checking your own credit report have an effect on your credit score. Rather, checking your own credit is a smart financial habit.
Myth: You can pay someone to "fix" your credit.
Fact: You can educate yourself about credit and improve your own credit score over time, but credit repair services typically can’t do much for you that you can’t do on your own if you put in the time and effort.
Myth: Getting married merges your credit history with your spouse’s.
Fact: Getting married doesn’t merge your credit history with your spouse’s, except to the extent that you and your spouse both become contractually responsible for the same debts (e.g., a joint credit-card account). A "merged" credit report includes both your credit and your spouse’s, but doesn’t merge your separate credit histories.
Myth: Getting divorced separates your credit history from your spouse’s.
Fact: Getting divorced doesn’t end your responsibility for debts that you are contractually obligated to pay. Nor does it end your ex-spouse’s responsibility for debts that he or she is contractually obligated to pay. That’s true even if your divorce decree stipulates that one or the other of you will pay those debts.
Myth: People who earn high incomes or are wealthy always have high credit scores.
Fact: Neither income nor personal wealth has any effect on your credit score. In fact, some people who have high incomes have low credit scores and some people with low incomes have high scores. Remember, your credit score is all about how you manage your debts – no matter how big or small your income.
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