Not only are many consumers unaware of what their credit score is or how to find out, but many hold false notions about what the score means.
Checking your credit score is generally a good idea before taking out any new credit, like a residential mortgage, auto loan or new credit card. But, according to a survey from MoneyTips, 14% of Americans have never pulled their credit reports, and nearly half haven't looked up their three-digit score in six months.
Not only are many consumers unaware of what their credit score is or how to find out, but many also hold false notions about what the score means. Here are three commonly held myths about credit scores and the truth behind them:
Myth No. 1: Checking your credit will lower it
This is a common misconception that many people hold. It's most likely derived from the fact that a hard pull on your credit report really can lower your score. Unfortunately, however, this myth has caused many people to neglect to check their score or pull their own report for fear of lowering it.
To understand this myth, it's important to know the difference between a hard inquiry and a soft inquiry on your credit. A hard inquiry is when you apply for credit and the lender pulls your credit report.
If you apply for multiple credit cards or loans in a short period of time, thus implementing multiple hard pulls, creditors may interpret that has an inability to secure any credit and is considered a red flag. Therefore, your credit score will drop a few points, CreditKarma reported. It most likely won't be enough to disqualify you for anything you would have been eligible for otherwise.
A soft inquiry, on the other hand, is any time your credit is pulled by yourself or someone who's not seeking to give you credit. For example, your employer or landlord may pull it at some point as part of a routine background check. This won't harm your credit.
You can - and should - check your credit report on your own on a regular basis. You're entitled to three free credit reports every year: one from each Experian, TransUnion and Equifax. Simply order one from annualcreditreport.com, a government-mandated website that provides consumers free access to their credit reports.
Myth No. 2: When you get married, you get a joint credit score
When you get married, you'll combine a lot of things: your kitchenware, your book collection and maybe even your finances. But you'll never get a joint credit score; every individual always has his or her own unique score. Despite this fact, a survey from MoneyTips found that nearly three-quarters of respondents believed that when two hearts become one, so do their credit scores.
However, when you and your spouse apply for credit together, the lender will analyze and make a decision based on both party's scores. As such, it's always a good idea to have the "money talk" with your beau before applying for a home loan or any other form of shared credit.
Myth No. 3: I can't get a mortgage because my credit is too low
Your credit report is one of the many documents your mortgage lender will need to review before finalizing your home loan. The better your score, the easier it may be to obtain a loan, and the lower the interest rate you might qualify for.
However, that's not to say that if you have a low credit score, you can't get a mortgage. According to a survey conducted by Fannie Mae, many Americans falsely believe that a score of at least 650 is required to get a home loan. In fact, Fannie Mae only requires people to have a score of 620. Some programs will even work with prospective homebuyers with no credit history at all.
If you think your score is too low to get a mortgage, don't let that stop you from homeownership. Reach out to your lender to find out if you qualify - there's no harm in asking.
To get more information about applying for a residential mortgage, contact Academy Mortgage. We can help you decipher your credit score and help you discover what loans you're eligible for.