Busted! Don’t Believe These Credit Myths!
Establishing a good credit score plays a vital role when it comes to qualifying for a mortgage. It is an important piece of your financial image and you need to fully understand how it works. However, the spread of misinformation about credit has concocted myths that could influence you to use your credit inappropriately and ultimately affect your credit score. Moreover, believing these misconceptions could lead you away from creating a healthy credit habit. To help you steer clear of these misconceptions, Cody Rowe - Mortgage Specialist, has debunked three of the most widely believed myths about credit.
Myth 1: Checking my credit score will decrease it!
This is one of the common prevailing credit myths that’s not true! When it comes to checking your credit history, there are two types of inquiries, soft and hard.
A soft inquiry occurs when you pull your credit report. As a consumer, you can extract your credit score as many times as you wish without repercussions. Also, your credit card companies pull soft inquiries when marketing pre-approval offers. You need to know that a soft inquires only appear on the report that you request from the credit bureaus and will not be visible to potential creditors.
A hard inquiry happens when submitting a loan or credit card application. This inquiry affects the score slightly, and it’s included in the calculation done for credit scoring.
Depending on the number of recorded inquiries on the credit report allows your potential lenders to see how often you apply for new credit. This can be viewed by lenders as a precursor to someone facing credit difficulty. Moreover, too many inquiries could mean that a consumer is deeply in debt and is looking for loans or new credit cards to bail themselves out. This is the primary reason why you want to refrain from too many hard pulls on your credit bureau in a short time period.
Another reason for recording inquires is identity theft. When you do not make a hard inquiry, it could be an identity thief opening accounts in your name. These inquires are required to remain on the credit report for at least a year but will disappear from the report after two years on all credit reports. You can rest assure because when you work with us, we only do one hard pull of your credit and use that same report when negotiating your mortgage rate.
Note that only individuals with a specific business purpose can check your score. Creditors, lenders, employers, and landlords are some examples of approved business people.
Myth 2: Too many credit cards will hurt my credit score
When I was a young kid, I canceled an old credit card that I no longer needed. I didn’t realize that canceling healthy active credit card accounts is more hurtful as all of the history is erased from your credit score. The average Canadian has at least ten credit sources, so having more credit sources will only spread out the influence of each credit source, allowing you to be less dependent on one if you do need to close it. To meet the minimum credit requirements, make sure you have at least two forms of credit, either a credit card or line of credit, with a minimum limit of $2,000 for each for at least two years.
Myth 3: A car loan will help me build my credit so I can buy a home
Car sales associates often convince people to upgrade to the newer model and take a loan out cause it will help build their credit. Although it’s correct making regular payments on any kind of loan is beneficial in establishing your credit history, there are more affordable and productive ways to build your credit score that don’t require you to go into additional debt. After they’ve been told this myth, we often meet clients, and often enough, they learn that the regular payment is decreasing what they can afford on their home. Remember, the TDS part of your affordability ratios includes all debts outside of your home purchase. This includes student loans, credit card debt, and car payments! If a car loan raises your TDS ratio past 44% then this will reduce what you are approved for.
If you’re looking to steer clear of these credit score myths, reach out to Cody Rowe - Mortgage Specialist. As a leading mortgage broker and credit specialist for Canada’s most extensive national mortgage brokerage, Dominion Lending Centre, I have the expertise to assist you in making the right decision with mortgages to purchase your dream home.