John Thornbloom

NMLS # 269996

303-918-8750

john@lmcolorado.com

John Thornbloom Mortgage/ HECM Specialist

5 Common Misconceptions That Keep You from A Perfect Credit Score

5 Common Misconceptions That Keep You from A Perfect Credit Score

Earning and keeping a perfect credit score is a great goal, but there are plenty of myths out there about how to achieve it. Since having a great score is essential for everything from getting approved for a mortgage to getting a car loan to even getting hired at a new job in some cases, here is the truth that will clear up any misconceptions you may have.

1. Checking Your Report Lowers Your Score

Today you can check your credit score for free once a year with any of the three major credit reporting agencies – TransUnion, Equifax, and Experian – and it never affects your score. However, when you apply for new credit, having a company pull your credit report may ding your score just a few points. Applying for a lot of new credit will also bring your score down.

2. Debt is Bad

It may be easier to think that having no debt at all is a sure ticket to a perfect credit score. That is not true. A credit score is calculated partially on how you have managed debt in the past. So, having a car loan or a mortgage can actually improve your score as long as you pay your bills on time.  It is important though, to not max out your credit lines. That will bring down your score. A good rule of thumb is to keep your outstanding debts to no more than 30% of your total revolving credit limits.

3. All Debt Counts the Same

Just having one type of debt is not as helpful to your score as having a good mix. An ideal mix would include installment loans like auto loans, home loans, or student loans as well as revolving credit like credit cards. Successfully managing different types of loans provides more data to the credit bureaus and shows you are more responsible with financing than if you had just one type of loan.

4. Your Credit Score Will Increase If Your Income Goes Up

You might think that getting a raise would give you a bump in credit score, but your income doesn’t factor into your score at all. What goes into your score are the following six components: payment history, outstanding debt, percent of credit limit used, credit age and mix, recent credit behavior, and the amount of available credit. It's not about how much money you have; it's about how you handle the money that gets loaned to you.

5. You Need a Perfect Score

Lastly, it is a myth that you have to have an absolute perfect score for your financing goals. Most lenders have a threshold for the best rates on things like mortgages and car loans. For example, a mortgage lender might decide to give out their best interest rates for those who have credit scores of FICO 740 or above. So, whether you have a score of 742 or 820, you will be offered the same rate assuming all other factors are the same. You do not have to go crazy getting your score up to the very highest it can go. Reaching the level of “excellent credit” is just fine.

Hopefully understanding these common misconceptions can help you achieve the score you’re looking for to qualify for all your important financial goals.

Give us a call today, even if you don't have a perfect credit score - we can help. We offer a variety of loan programs that are designed to help borrowers with less than perfect credit.