4 Credit-Scoring Myths for Buyers of Del Mar Homes

When you are preparing to buy a Del Mar home, it's important to know what information will help and hurt your chances of getting a loan from a lender.  Mortgage lenders themselves are broadcasting the things that have a positive and negative impact on your credit score, and some of that information is not accurate.  Here are some facts that will help you to best prepare your credit standing for applying for a loan.

The following information is NOT true and will not help your credit score. 

1. Closing accounts can help your credit score

Closing accounts will never increase your credit score; rather closing accounts may hurt your score.  It is true that having too many open accounts can hurt your score but once the accounts have been opened the damage is already done.  Closing the accounts will just make the situation worse.  Why?  Your credit score is based on the ratio of used credit versus available credit.  If you close accounts, your available credit decreases, increasing your debt to available credit ratio.

Instead of closing accounts, pay down the debts on any credit card accounts.  That will improve your score.

2. Checking your FICO score can hurt your credit

Applying for new credit is what can negatively impact your score. Ordering a copy of your own credit report or credit score doesn't count.

You can minimize the damage credit inquiries can deliver to your credit score by shopping for a mortgage over a short time period. The FICO score treats multiple inquiries in a 45-day period as just one inquiry and ignores all inquiries made within 30 days prior to the day the score is computed.

3. Credit counseling will hurt your score as much as a bankruptcy

For the past 3 years, the FICO formula to determine credit scores has ignored any reference to credit counseling.

The mortgage lenders who don't like credit counseling tend to treat people with counseling as if they filed for Chapter 13 bankruptcy which requires a repayment plan and looks better on credit than a Chapter 7, which eliminates most debt accounts.  Working with these lenders will most likely get you a higher interest rate than other lenders that do not look negatively upon credit counseling.

4. Your FICO isn't the only score you need to check

All three credit bureaus offer the Experian-named FICO credit scores using the same formula - they just use different names.  With Equifax they call their credit score the Beacon score and TransUnion calls its score Empirica. 

In most cases, individuals have three different scores from the three different bureaus as the bureaus don't all use the same data. This is why it's important for you to pull your credit reports from all three credit bureaus before you applying for a large loan.