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The Truth Behind Credit Score Myths

October 20, 2014

When you have clients who are credit challenged, you might think it’s the end of the road with them. However, there are ways potential buyers can begin to repair their credit. By helping them find those resources and take those steps, you can build a relationship of trust and expertise so they return to you when they are ready.

Here are some myths about credit scores and the true answers.

 Myth: A lower number of credit cards or loans helps increase the credit score.

Answer: Actually, the credit reporting agencies are less concerned with the number of credit cards or loans a person has and more concerned with how they are handling those accounts.  In most cases, maintaining a minimum of debt leads to better financial management, so maintaining a limited number of loans and credit cards that are paid on time every month makes sense.

Myth: Closing old credit cards that are unused is a good thing.

Answer: Not necessarily! Closing the oldest cards can hurt a credit score. Plus, a person that uses just a small portion of credit that’s available to them is viewed as a better risk than someone who has utilized a lot of their credit, from a credit-scoring perspective. If a client begins closing old credit cards, the ratio of credit used to what’s available automatically increases, and that can lower the scores.

Myth: As soon as debts are paid off, the credit score will go up.

Answer: Credit scores are based on credit history, not a single day. That means that it can take time for improved financial habits to impact the credit score. In addition, there are many other factors that impact the credit score, such as late payments or past collections, and they can remain on the credit report for up to seven years.  Consistent good financial behavior will benefit credit scores over time.

Myth: I can’t shop for a loan because too many inquiries will affect my credit score.

Answer: Consumers are encouraged to shop around to find the best rates and terms for their situation. For that reason, the three credit reporting agencies generally consider multiple inquires in a short window to be for a single inquiry.

By acquainting yourself with some of the basics of credit repair and pointing your potential clients to them, you provide them with a valuable service and build rapport that may bring them back to you when they are able to buy or build a home! 

Your loan officer is always willing to work with you and your customer to put together a credit repair plan. Find out more by reaching out to your loan officer.

Source: http://www.vantagescore.com/docs/VantageScore_LessonPlan.pdf

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