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There's no doubt about it ‒ when you're applying for a mortgage loan, a high credit score helps you lock in a better interest rate, which can save you thousands of dollars over the life of the loan.

But, on a scale of 300 to 850, only less than 1% of the population has an 850 credit score. While it may seem impossible to achieve a "perfect" credit score, you can be knowledgeable on credit and understand how it affects you.

Let's take a minute to clear up some common myths and misconceptions about credit scores.

Myth #1 - My Credit Score Determines Whether or Not I can Get a Mortgage Loan

Not true! Your credit score is important, but it's only part of the equation. Your credit score gives the lender a snapshot of how reliable you are when it comes to managing your finances. But, the lender also looks at your debt-to-income ratio, employment history, and other factors. In addition, different lenders have different underwriting policies, so it's best to work with a reliable mortgage banker to find the best loan program that fits your specific needs.

Myth #2 - Closing Old, Inactive Accounts Will Raise My Credit Score

Not true! Those old accounts are part of your credit history, and a longer credit history helps your credit score. It's better to keep an old card active and make a small purchase from time to time, or use it to make an automatic payment of a regular monthly bill. Closing the card reduces the total amount of available credit you have. This increases your debt-to-credit ratio and brings your credit score down.

Myth #3 - Paying Bills on Time Will Immediately Improve My Credit Score

Paying bills on time is one of the best things you can do to maintain a good credit score. But, it only accounts for 35% of your total FICO® Score. Your score also reflects your amounts owed (30%); length of credit history (15%); types of credit in use (10%); and new credit (10%).

Myth #4 - My Credit Score Will Drop if I Apply for New Credit

New credit ‒ including credit score inquiries ‒ only accounts for 10% of your credit score. If you've applied for many credit cards within a short period of time, you may appear to be "credit hungry" or experiencing financial trouble. However, if you're shopping for the best rate on an auto or mortgage loan, multiple inquiries within a 14-day period of time are usually lumped into one inquiry.

Myth #5 - Checking My Own Credit Score Will Bring My Score Down

False! When you request a copy of your own credit report, it's considered a "soft pull" which has no effect on your credit score. In fact, you should request a copy of your own credit report once every 12 months. You can get that for free from annualcreditreport.com, which is the website recommended by the Federal Trade Commission.

Myth #6 - A Low Credit Score Will Haunt Me Forever

Not true! Credit scores fluctuate continually based on the information reported by your creditors, and you can always work toward improving your credit score. Chapter 11 and 7 bankruptcies remain on your credit report for 10 years from the date filed. Completed chapter 13 bankruptcies stay on your credit report for up to seven years from the date filed. (These dates refer to the public record item associated with your bankruptcy.) But, the negative effect of a bankruptcy diminishes over time.

Myth #7 - The Government Owns the Credit Reporting Agencies

Not true! Credit reporting agencies are not owned by the government. Fortunately, the government has instituted laws to regulate how credit reporting agencies operate, and to protect consumers and oversee fair practices. Two good government resources for consumers are the Federal Trade Commission and the Consumer Financial Protection Bureau.

Myth #8 - Paying Off Old Collection Accounts Will Improve My Scores

Probably not. Credit expert John Ulzheimer says that even if you pay off a collection account, it can only be reported as a zero balance, according to agreements between the credit bureaus and debt collectors. The fact that the delinquency occurred still stays on your report.

Don’t fall prey to credit misconceptions. Be sure to do your homework and talk to an expert. When it comes to home loans, our dedicated mortgage team is here to help you work out a mortgage strategy that best suits your short- and long-term goals.

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