Credit Scoring Myths

There are many credit score myths being told by professionals that should know better. During my mortgage career I have heard all kinds of myths and some flat out lies. Regardless of the intention of a lender, I am going to discuss the facts about what will really affect the credit scoring process. Now don’t get me wrong there are some really good lenders out here, but some are not be forthcoming either.

Pulling your FICO score will lower it.
One of the biggest myths is getting your credit report pulled by multiple mortgage lenders will lower your score. This has to be one of the biggest sales tactics in the entire mortgage industry. Lenders are telling you this so you don’t shop around. They are trying to win your business, but really are not telling you the truth.

Fair Isaac aka FICO allows you to get your credit report pulled multiple times during a 45 day window while mortgage shopping and all activity will only be one inquiry. It makes no sense for FICO to penalize you for shopping around for the best terms and rates on a mortgage.

So the next time a lender tells you that if you pull your credit report with another lender it will affect your score, he /she is not being honest with you, or they don’t know the facts. Keep in mind that a hard credit inquiry could lower your score around 5 points or so. Just remember in order to get a loan your credit has to be pulled. I wrote an article a while back on what type of inquiries affect your credit score. Go here to read.

Closing Credit Card accounts help your score
I am not sure where this came from, but it’s dead wrong. Closing a credit card account does not help your score. This type of activity to your report affects the following:
•    Length of Credit History – 15% of your score
•    Amounts owed – 30% of your score

If someone tells you to close your credit card account, that is bad advice and could cause a denial on a loan. I have never heard of an underwriter asking a potential borrower to close an account to get qualified for a loan. This just sounds plain silly.

If you have a credit card with a credit limit of 10,000 and you use it occasionally, it’s ok. That is good credit that you have established. So if a professional ask you to close a credit card, I would find another professional to help you.

A Short sale will not affect your credit score like a Foreclosure
In my professional opinion a short sale is being marketed incorrectly by most real estate professionals. We have realtors all over the country pushing short sales and telling the seller a short sale is better than a foreclosure. This simply is not true. According to Fair Isaac the maker of the FICO Score, there is not much difference between a foreclosure and a short sale. They both have a negative impact on your credit rating.

When you decide to attempt a short sale the bank will require you to stop all mortgage payments. This is part of the short sale approval process.

Once you stop making payments on your mortgage note the damage has started. You will begin to get slow pays on your credit report. In a real estate market like we are currently in, it takes time to sell your home. In most cases it will take at least 6 months to sell your home and in many cases longer.

Once you get a 120 day late payment for mortgage history, this is considered a foreclosure in the eyes of most banks.

Don’t get mislead by Realtors trying to make commission. A short sale will affect your credit rating just like a foreclosure.

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Disclaimer: This information has been compiled and provided by as an informational service to the public. While our goal is to provide information that will help consumers to manage their credit and debt, this information should not be considered legal advice. Such advice must be specific to the various circumstances of each person's situation, and the general information provided on these pages should not be used as a substitute for the advice of competent legal counsel.