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9 credit score myths holding back home buyers

Certified Mortgage Advisor
NMLS 1701021
Published 
February 27, 2023

Let's forget this 9 Credit Myths and buy a house!

Now, let me show you nine credit score myths that may be holding you back from buying a house. And look, credit scores are complex and sometimes really overwhelming. If you overcome these myths, it's gonna be easier for you to purchase a home and also do it with the most savings possible.

Why it matters

Here's why this matters, you want an easier loan approval. Nobody wants to go through the home-buying process and it is really complex and really difficult because of where your credit score is at.

Also, you'll get lower rates and lower costs, lower closing costs when you have a higher credit score.

Myth One: Shopping for a mortgage hurts your credit score

I hear this over and over again. Somebody gets a pre-approval and then they say, I don't want to get another pre-approval cause I'm afraid it will hurt my credit score. Okay, so let's back up for a second and understand the difference between these two different types of credit pulls.

Two kinds for credit pulls

All right, so you need a credit pull to get mortgage approval. There is what's called a soft credit pull and a hard credit pull.

What is a soft credit pull?

The way a soft credit pull works is it has lower accuracy. Cuz it's based on likely what's called a vantage scoring model. It's not going to show up on your credit report and it's used for when you're getting an estimated kind of pre-qualification to see a general idea of what's on your credit score.

What is a hard credit pull?

A hard pull is going to be extremely accurate. It's going to be listed on your report as a credit inquiry, and it's used for a real pre-approval, so you need a hard pull to be able to get a mortgage pre-approval. Now, the problem here is this is where people have the fear of, oh no, it's on my credit report, and is this going to impact my score?

45-day window

So first of all, the CFPB is the regulatory body that oversees extensions of credits. In this case, getting a mortgage pre-approval says you have a 45-day window, you said they say within a 45-day window, you can have multiple lenders check your credit without any additional impact on your score.

Effectively, you have 45 days for unlimited mortgage inquiries. So if you get one today, you can get five more tomorrow within the next week, within the next two weeks, and it will only count on your score as one inquiry.

Those other inquiries will be listed, but they won't impact your score over and over again. I'll count it as an inquiry.

How it impact your score according to Experian?

Then if we look at Experian to see, how much an inquiry impacts your score? It says less than five points, so zero to five points. They say you can expect a hard inquiry to temporarily decrease your credit score by five points or less according to FICO. But if you have good credit, your score may drop less than that.

So ultimately this myth that shopping for a mortgage hurts your credit score absolutely does not. You need a hard credit pull to get an actual realistic and reliable pre-approval.

Myth Two: is Vantage or soft pull scores don't matter

Just like we talked about these soft pull methods, they have lower accuracy. This is why people tend to prefer finding out what their actual credit score is. The soft pull may be off by a few points, maybe up, off by 10 points, or 20 points. It really depends on your situation.

Why not get a soft pull?

But a lot of people think that they don't want to have a vantage score or a soft pull score because they think it's not gonna be helpful for them.

Quick definitions

Each company has multiple versions of soft and hard credit pulls, but commonly when we're talking about Vantage score, this is what's the most common soft pull scoring. FICO also has soft pull algorithms, but it's the most common hard pull algorithm that's going to be used by mortgage lenders.

How to track the improvement of your score

So when you're working on credit, you only really need to look at the momentum of your score. I don't know why, but for some reason people think when they're So when you're working on credit, you only really need to look at the momentum of your score. I don't know why, but for some reason, people think when they're working on their credit, they need to know exactly what their score is, and we don't really need to know exactly what it is. It doesn't really matter if we're 10 points off because we can get our exact score at a place like My FICO.com if you want. That's the only place that you'd be able to get. To pull your own score, that's going to be exactly what a mortgage lender is going to pull. And it's more expensive if you go through a company like that.

Impact and Feedback

So you absolutely can, but what we really wanna know is when we're looking at our score and when we're working on our credit report or improving our credit score how do our actions impact our score? We want to get feedback to see, if are we on the right track. Are we not on the right track, or are things stable, or is our credit score not moving? So momentum gives us the feedback that we're on the right track.

Not to mention when we look at something like a Vantage score this has no impact on your credit score and it's a lot cheaper to look at than something like a FICO score.

When is the exact score significant

Now, an exact score is really only helpful if we're on the edge of qualifying for a loan program. For instance, conventional loans have a minimum of 620 scores. So maybe we're around the 619-ish range and we want to get that one extra point and make sure that we have it so that we can qualify for something like a conventional loan.

In that instance, absolutely. Maybe you want to look at your exact score, but looking at an exact score costs more money and there's really not a big need to look at that.

Here's where to get one

A soft credit pull is on sites like things like Credit Karma or all those other sites where you can get your credit report for free.  Another one is your credit card dashboard. If you have a credit card, likely they show you your current score with a soft pull method. Then another one is SmartMaster.

ScoreMaster

This is sponsored by Score Master and you can get a seven-day trial at SmartMaster, and this is what I personally use. So when you first open your SmartMaster dashboard, it's gonna show you three tools.

ScoreTracker

You have your ScoreTracker, so this is gonna show you that, again, that soft pull, so you can track the momentum of your score and how that changes. Over time, which is exactly what we want to see. When we're actually doing, our own work on adding points to our credit scores.

ScoreBuilder

Also ScoreBuilder and ScoreBoost. So Score Builder shows us the actions that we can take So inside a score builder, it's going to walk us through along-term plan to get us on the right track with our score.

ScoreBoost

Then score boost. What this can do is show us the payments that we can make on our current accounts and how many points can be added to our credit score. So we can actually take a look in here at where the current score might be at, and then also take a look at our different accounts and how much we could pay.

And how it would impact our credit score. So you can see an additional 25 points here by paying $3,300 in our test account here. And it shows you exactly which accounts and then the payment amount to get an additional six points paid by a specific date.

So again, that seven-day trial is at SmartMaster.

Myth Three: that credit work is hard

Now, most people think there's like some sort of trick or hack to get it right, and the truth is credit is too complex. To do it on your own efficiently. You absolutely can do it on your own if you'd like to. I would try to do it on my own, and it's extremely complex. You're trying to do all this research to figure out what to do. And ultimately it's best to either have software or human guidance through the process because again, you can absolutely do the work on your own, but if you want to get to the spot where you want to get quicker, it's easier to have some guidance.

Two way to get guidance

So there are two primary ways to guidance either through working with a credit coach or through Score Master or another credit simulation software.

Myth Four: The only way to fix my credit is through expensive coaching

So I wanna walk you through a couple of different credit improvement tools or strategies that people use.

Credit Hacking

One that I see a lot on like social media Instagram and other things is credit hacking, where they're like, pay this company money and they're going to hack your credit report and remove whatever or add whatever. These are scams. Please don't fall for these things. There are a lot of companies out there that will say they can improve your credit score and basically they're going to take money from you and not do anything.

Any company that says we will do the work for you is likely going to be a scam. That's not how credit, even credit coaching works, you still have to put in work on your own credit score.

Low-touch coaching

Also, low-touch coaching. So there are a lot of sites or a lot of companies that will offer low-touch coaching. So it's gonna be credit counseling or credit coaching for a lower cost. And you may have an advisor with that, but often some of what can end up happening is they might just send out like blanket mailers to file disputes, or they give you some general vi general guidance that doesn't offer really great results.

High-touch coaching

Another option is high-touch coaching. And this is great for complex credit issues or if you really need to get a really big increase in your credit score in a short amount of time. But these can be pretty expensive.

Research-based DIY

Another one is research-based. Do-it-yourself options. This can be time-consuming and not always the most efficient. So this is if you're, combing three different articles and trying to understand how to do it yourself. It's absolutely a strategy, but it can take a lot of time, and again, it may not be the best path forward in the quickest amount of time.

Software-based DIY tools

Another one is software-based DIY tools, and this is great for removing. In finding your best score. So you know, two examples or brought a couple of examples here. You're gonna get a soft pull from your credit card info. They might have some help there. You can use score master as I mentioned in this video. Another one too is your loan officer may have access to credit simulation software as well that can help you through that.

Significance of Time for high scores

Another strategy that a lot of people need is time on their side to get high scores. And this is often for people who don't really have a lot of credit work that they needed in the first place. Maybe they're at a 700 score and they want to get to, an 800 or a 740 or whatever. And often for those people, it's just going to take time on your account for your score to over time.

Myth Five: You need a good score to buy a house

These are the minimum credit scores needed for the most common types of loans. For conventional loan, you need a 620 credit score. For an FHA loan, you need a 500 credit score. For USDA, you need a 500 credit score, and for VA you need 500 credit score.

Don't be afraid if you have a low credit score

You don't need a super high credit score to qualify for a mortgage. Now, there are a lot of lenders who won't let you do a loan with these credit. So what I would suggest is if you're in a spot where your credit is on the lower side use a mortgage as a bridge.

So what you can do is still purchase a home and after you purchase a home your credit score as you pay down your mortgage is going to increase over time. Then, what I would suggest is in that period of time is as you're working on your credit, is maybe you got an FHA loan cuz you had a lower credit score and you buy the house and then you need to start working on your credit so that you can refinance into something like a conventional loan, which is gonna have better interest and mortgage insurance savings long term for you.

My personal choice

Now, ultimately, what I would do is, if I was in a situation where I had a lower credit score, I would first ask what brought me to the place of having low credit.

If there are some habits in your life or there are some budgeting problems, or maybe there are some other financial circumstances that are going to keep you having a lower credit score, then maybe it's not the best time to purchase a house. What I would suggest is only look at purchasing a house if you have credit.

That's middle to on the lower end if you know that you're gonna be able to continue working on improving your credit.  in the future. We wanna correct those habits before we purchase a house. So it's a personal choice that is up to you. Now, there's this thing called lender overlays where a lot of lenders will actually come in and say, actually, we won't do a conventional loan unless you have a 640 score or an FHA loan unless you have a 640 score.

So those are called overlays, and what you can do is talk to multiple different lenders to see what other options you may have. But these are the bare minimums here.

And my team works with lenders that go all the way down to these minimums. So if you're running into overlays with other lenders, reach out to my team. We can schedule a free home loan consult. The link is in the description, and we can connect you with lenders who go all the way down and don't have these overlays if you're running into that problem.

Myth Six: if you have bad credit, you shouldn't buy a house

This is always a fun one.  Anytime I make a video about credit, there usually ends up being somebody who says if someone has a bad credit score, they're a bad person and shouldn't be able to buy anything ever again in the future. And that's a very interesting perspective on life that I don't agree with. Ultimately credit scores are a made-up system. That only shows how you pay back debt, right?

A low credit score doesn't mean you are not good at paying

Please don't forget that credit scores are a game made by three companies that have a monopoly on the credit reporting system. It's all made up, okay? This isn't an indication of how good you are as a person or really a true indication of how well you are handling finances.

They don't consider the fact that you may pay your rent on time for the past 10 years that you paid all your other. On-time or your budgeting habits, there really is no moral quality to a credit score. It's only a determination of risk used by other people who extend credit.

If you get a new credit card or a new auto loan or a new mortgage, plenty of good people have bad credit scores because of things like medical debt. You may get into a car crash or develop an illness.

I worked with a client once who got into a car crash, had to be care flighted, had a hundred thousand dollars medical bill from the helicopter flight, and he of course could not pay that because he was a disabled veteran and had nowhere near enough money to be able to pay a hundred thousand dollars in medical debt.

On his credit report and he had a low 500 credit score and we were able to get him into a home with a VA loan. So it's like that. He's not a bad person because he happened to get in an accident and couldn't pay for a helicopter flight. That doesn't mean he doesn't deserve quality shelter.

Also, people can be in abusive relationships or have negligent partners and that can impact their credit score based on maybe somebody who was in control of finances and wasn't paying things on time or other issues that prevent somebody from working. There are plenty of other life circumstances that can cause a lower credit score than otherwise responsible and good.

So people with good and bad credit still should be able to seek quality shelter that allows 'em to build equity without their rent increasing year after year.

Myth Seven: Paying off collections will help my score

Paying off collections can actually hurt your score by updating the date of the last activity on your credit report. I know the sounds counterintuitive when you think if I pay my collections off, then my credit score will finally go. Unfortunately, that's not the way that it works. A pay-for-deletion is the best solution for this, where you actually negotiate with the collection agency to say, Hey, if I pay this, can it be deleted from my credit report?

That doesn't always work. Another option is allowing time to just lessen the impact of the collection and focusing on other areas of your credit report to work on.

Myth Eight: Closing a credit card is good

Similarly that closing a credit card is good. So closing a credit card actually is going to lower the average age of accounts on your credit report and will actually lower your score.

You would think oh man, if I don't use credit, then it's going to be better for my score, and that's not the case. Keep your credit cards open if you need to keep them active, just go buy a pack of gum at a gas station and then pay it off, okay? You're not gonna pay any interest. That's gonna make sure your credit card stays open and increases the average age of accounts on your credit report.

Myth Nine: I can just pay someone to remove stuff I don't want on my credit report

Unfortunately, I see this a lot where people think I can just go hire somebody to take care of the problems on here. No person or service can remove accurate information from your credit report.

So unfortunately, if you have a late payment, let's say you had an auto loan and you didn't pay it when. The due date came up. There is no way to remove that if that's what actually happened. There's no way for that to go away. You can't pay for a service, you can't pay a software. You can't pay a person to remove accurate information.

Yes, you can dispute inaccurate scores

What you can do is remove inaccurate. Information and it's done through what's called a Dispute. So you can dispute inaccurate information to get it removed. What this does is it opens up a short investigation, is what it's called on your credit report, where the creditor then can come back with proof about if that debt or whatever you're arguing on your credit report is accurate or not.

And so what you can do is actually a tool like a score master to make it easier to file actions on your credit report.

The score master software makes it easy to help file some of these actions for you. So you can do things like fixing credit, reporting errors, getting goodwill corrections, paying off or negotiating small debts, or removing identity theft. And so what it will do is walk you through the different accounts that are impacting your credit score.

You can then go to take action on those different accounts. And here you can learn more about how this works. But for instance, maybe there was an error that I recognize on a Citibank account, and this is not my account, this is a test account here, but maybe there's an error here and I can click fix the error and select a reason why an add more details into why this is an error on the report.

So Score Master can take care of those actions for me. So if you'd like more guidance with a software base approach to add more points to your score, you can get a seven-day trial for SmartMaster.

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Kyle Andrew Seagraves is Federal Mortgage Loan Originator (NMLS 1701021) licensed in all 50 states with the Dan Frio Team at Servbank, sb (NMLS 203463), an Equal Housing Lender. Separately, Kyle owns Win The House You Love LLC, an education company. Win The House You Love LLC is not a lender, does not issue loan qualifications, and does not extend credit of any kind. This website is only for educational usage. All calculations should be verified independently. This website is not an offer to lend and should not directly be used to make decisions on home offers, purchasing decisions, nor loan selections. Not guaranteed to provide accurate results, imply lending terms, qualification amounts, nor real estate advice. Seek counsel from a licensed real estate agent, loan originator, financial planner, accountant, and/or attorney for real estate, legal, and/or financial advice.

Servbank, sb is not affiliated with the VA, FHA or any other government agency. This site has not been approved by any government agency.

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