Stay in the know.
Did you know that according to the Corporation for Enterprise Development 56% of consumers have subprime or poor credit? That means more than half of customers are missing out on the great advantages that come with having decent or great credit and lower interest rates. With so much hearsay information that we all hear from word of mouth or from our loved ones, it’s no wonder that we have had it wrong the whole time. Below are 5 myths that are crucial for you to know to be on your way to improving your credit, or keeping your credit at a great number. You will definitely want to read this, and pass it along to everyone you know!
1) Canceling credit cards increases my score
It is encouraged to have at least 2-3 lines of active credit to show that you can manage debt responsibly and pay your bills on time. Reality is that if you have an unused card then there is no harm there and it does not affect your score, so there is no need to cancel, unless you just feel like it is too much temptation for you to spend it too easily. Common sense will tell you that also opening up 5 cards around the holiday season to take advantage of deals is not smart and looks negligible to the credit card companies.
2) Credit scores are the only factor in determining if you can get credit
It is definitely an important factor, but not the only factor. A great example would be a high school graduate that has just started using credit cards. He may have less-than-great credit right now, but with a co-signer, as well as proof of employment and income, he is still a viable candidate. Employment, household income, cosigners, and the level of risk assessed by the lender are all factors in the lending decision.
3) Age, race, and sex affect your credit score
Simply put, Creditors haven’t been able to base a credit decision off of race, color, religion, marital status or anything of the like since 1976 and the passing of the Equal Credit Opportunity Act. But keep in mind that if you are married and put everything in your husband’s name, and then you go and apply for a loan independently, you may have the same credit rating as a 20-year old would with no credit because you don’t have any established credit.
4) I pay my bills on time so I don’t need to check my credit report.
Without downplaying how great of a factor it is to pay your bills on time, it is also true that it isn’t the only factor. As stated by the Federal Trade Commission 1 in 5 Americans had an error in their credit on at least 1 of their credit reports. That is a shocking number for sure! You want to check your credit regularly so that those errors do not negatively affect you down the road without your knowledge. Set a reminder on our calendar to check your credit report at least once a year.
5) As a cosigner, your credit score is safe.
As much as most people want to help others in their time of financial need, it’s important to understand that even though you are only co-signing, you are as much involved and you are both responsible at the end of the day to make sure that loans gets paid back. So if you are a mother and you co-sign for you child, and he/she misses a payment or exceeds their credit limits, then both scores will be penalized. Rule of thumb is to make sure that you both understand the risks involved.
We hope this article helps you with some of those common misconceptions that we are all prone to believing. If you have any other questions or need further clarification into any of the points above then please don’t hesitate to call us at 866-456-5511 or visit us at myscmo.com.
Mortgage Options, Inc. is a licensed mortgage broker NMLS 803458 SC DCA and NMLS 1183586 NC Commissioner of Banks