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5 Credit Myths for First-Time Homebuyers
The Real Estate industry can be intimidating to first-time homebuyers, especially when they begin the preapproval and prequalification process. Below we’ll refute the most popular credit myths in today’s real estate market.
Myth #1: Closing an Old Account Will Help Your Credit
This is a very common misconception about credit impact. Lenders mainly review a real estate agent’s client’s credit history by looking at how long accounts have been open. Typically, lenders average out all of your current and past accounts to get an accurate, standard length of time. Therefore, the longer your accounts have been open, the better.
Myth #2: All Debt is Treated Equally
There are many different kinds of debt, and each one has a different risk and purpose. These risks are what lenders evaluate when examining your credit. For example, short-term accounts (credit cards) are viewed as more risky if the account has a high amount of revolving debt. In contrast, a long term debt (a 30 year mortgage) is viewed as less risky because of the extended amount of time you have to pay off your debt. Basically, if you have a maxed out credit card and a car loan with a high balance, the credit card is more detrimental to your credit.
Myth #3: Your Credit Can Be Improved With the Help of Credit Repair Companies
Popular companies, such as Credit Karma, Credit Sesame, Equifax, Experian, and TransUnion advertise their ability to supposedly improve your credit. But before you buy into all of their promises and craft a utopian view of your credit, remember the saying, “if it looks too good to be true, it probably is.” These companies can only help you establish a plan to consolidate your debt. They cannot reverse your debt, nor magically make it disappear. To put it simply, in order to reduce your debt, you need to pay off your account. If homebuyers want to create this plan by themselves, they need to make a spreadsheet with their periodic expenses along with their monthly income to map out a timeline for debt payments.
Myth #4: When You Pay Off Your Debt, It Gets Removed From Your Credit Report
False. A missed payment or a collection has the ability to remain on your credit report for up to 7 years. Even though paying off this debt will stop banks from trying to collect on it, there is no possible way to remove a derogatory mark from your credit history unless it was reported incorrectly.
Myth #5: Your Credit Report Reflects Your Relationship Status
Questions regarding information like employment, income, and relationship status are not reported to credit bureaus and will only come up during the credit application process. Your relationships, whether past or present, do not appear on your credit report. Therefore, if one partner does not pay a debt and you are on the account, you will both be impacted negatively.
As a homebuyer, you should schedule consultations with lenders about entering the preapproval process for a loan and to formulate a plan for debt payment that allows you to have a better interest rate. Real estate agents have an abundance of information about the homebuying process from their years of experience, so feel free to call our top notch agents at VB Realty Group for your credit questions and real estate endeavors.
If you want to read Vance Kellogg’s full article, click the link below.