Your Credit App Isn't What Your Lender Sees: Credit Myths Homebuyers Should Stop Believing

If you think you know everything you need to know about credit before buying a home, there's a good chance at least one myth is still hiding in there. I've learned a lot about credit over the years, and I still picked up new things when Bob Willis joined us for a Tuesday training.

Bob is a litigation attorney who spent years representing consumers in lawsuits against the credit bureaus under the Fair Credit Reporting Act and the Fair Debt Collection Practices Act. Today he's the CEO and general counsel of Credit Repair Resources. I've also been a client. His team found items on my report I didn't know were there and helped me fix them. Here are the myths he wants every homebuyer to stop believing.

Myth: You can fix your credit in 30 days

This is the biggest one right now, Bob said, thanks to social media videos promising a fix in 30 days or less. In his words, the people making those promises are either lying to you or scamming you.

Some of the shortcuts they push are illegal, like getting a new Social Security number. Another is "letter jamming," flooding the bureaus with disputes. That can push items into a disputed status and give you a temporary bump, but once the letters are processed and the items stay, the score drops right back down. Bob calls it illegal and, in the long run, ineffective.

Myth: The score on your credit card app is what your lender sees

Many credit cards and apps now show you a score, and that's helpful. But a mortgage lender typically looks at a tri-merge report, which combines all three bureaus, Experian, TransUnion and Equifax, into one report.

Some popular apps only show part of that picture. Credit Karma, for example, shows information from Equifax and TransUnion, not Experian. If you want to see all three reports yourself, the FTC notes you can get them free every week at AnnualCreditReport.com. They come as three separate reports, so compare them side by side and look for anything that doesn't match.

Myth: A rapid rescore is the same as credit repair

Some lenders offer a rapid rescore, and Bob says that's completely legitimate and worth using. But it's a different tool. A rapid rescore is usually for simple updates, like showing the bureaus that you just paid your credit cards down to certain balances.

According to Capital One, only a lender can request one, it generally takes a few business days, and it doesn't remove accurate negative items like late payments or charge-offs. Fixing errors, outdated accounts or identity theft on your report is a longer process, and that's where credit repair comes in.

Myth: A zero balance on your credit cards is best

A lot of people think the best thing for their score is a zero balance. Bob says the ideal is actually around 10% of your limit. You have to use credit to show you can handle it.

The amount you owe makes up about 30% of your score, so it matters. Just don't confuse "use very little" with "use none."

Myth: Paying off a loan always helps your score

Paying off a loan is good for your finances. It isn't always good for your score right away. Bob recently paid off a car loan he'd had for years, and when the account closed, his score dropped about 30 points.

His score will recover over time, and he didn't take out a new car loan, which could have dropped it further. The lesson for homebuyers: if you're planning to apply for a mortgage soon, talk to your lender before you pay off, close or open any accounts.

Myth: Paying a few days late hurts your credit report

Paying late can cost you a late fee, but a payment generally has to be 30 days past due before it shows up as late on your credit report. If your mortgage is due November 1 and you pay November 5, you're technically late, but it won't be reported unless you go past the 30-day mark.

Once it does get reported, though, it hurts. Bob says a 30-day late mortgage payment is the single most damaging thing for your score, and it can drop it by 80 points overnight.

Myth: If you qualify for a loan, your credit is good enough

Bob hears agents say things like "you need a 640 to get an FHA loan." Some lenders will lend at 640, but Bob's point is that it may not be the loan you want. He says the difference between a mortgage at 640 and one at 760 can be hundreds of dollars a month.

That's why his company's website is crr760.com. A mortgage professional told him that at 760 you're getting the best pricing they have, so pushing toward 800 doesn't change much. And even a smaller jump, from the mid-600s to 680 or 720, can open up more loan options so you get to pick the product instead of being stuck with one. If you're buying now, it can make sense to lock in a loan and keep improving your credit so you can refinance later.

Want a second set of eyes on your credit?

Credit is confusing, and you don't have to sort it out alone. Bob's team offers a free review of your credit report. You can reach Credit Repair Resources at crr760.com.

When you're ready to start looking at homes, schedule a time with me or someone on our team at 21mike.com.

Want to see the full session? Watch our Tuesday training with Bob Willis.

Mike Ferrante
The Mike Team at LPT Realty
www.21mike.com
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