When you apply for a mortgage loan, your credit score helps lenders determine your credit worthiness, or in other words, the amount of risk they’re taking on when giving you money. However, many borrowers have preconceived notions about credit scores, how they’re used to determine who gets a loan and what affects their score. 

Here are 6 common myths that consumers have about credit scores and the true facts:

Myth #1: You only have one credit score. While the most commonly used credit score is the FICO Score, created by Fair Isaac Corporation, each of the major credit reporting agencies (Equifax, TransUnion and Experian) issue their own FICO Score. These three scores can vary based on the information these credit bureaus have obtained about you and your credit history. Additionally, you can have different credit scores depending upon the lender, other credit bureaus, the scoring system used and the customer risk or behavior score.

Myth #2: Your credit score decides whether you get credit or not. In addition to your credit score, lenders look at a bunch of different information to determine whether to loan you money, including: your income, employment history, the types of credit you have, current available credit and amounts you owe, credit history (how long you’ve had credit and your payment history), monthly expenses and debt obligations, recent credit applications and available collateral.

Myth #3: A past poor credit score will keep me from getting a loan. Your credit score is just a snapshot of your credit performance at a particular time. While late payments, bankruptcies, foreclosures and collections can stay on your credit report for 7 years, eventually they do go away. (The exceptions – Chapter 7 bankruptcies can stay on your report for 10 years while tax liens can stay on indefinitely.) As you make improvements to your credit history, your credit score can get better.

Myth #4: Credit scoring discriminates against minorities. Your credit score is determined only on your credit information. Personal information like your gender, race, nationality or marital status is not considered in credit scoring. The Equal Credit Opportunity Act (ECOA) actually forbids lenders from considering this type of personal information in determining if you should receive a loan.

Myth #5: Credit scoring infringes on my privacy. Credit scoring uses the same information that lenders use – your credit report. Your credit score is just a number based on that information. 

Myth #6: If I apply for new credit, my score will drop. When you apply for new credit cards or shop for loans, the inquiries will appear on your credit report, and this can cause your score to drop slightly. But if you make your requests within a short time frame, they will all be treated as one inquiry, which should have little impact on your credit score.

Just remember, if you’re looking for home loan, lenders look at various factors to make their credit decisions. And many of these myths about credit scores are just not true. Even if you have a low credit score, many lenders offer a variety of credit options that are geared toward different risk levels. And most lenders have their own guidelines they use to determine whether to approve your mortgage loan.

Contact the mortgage specialists at Grandview Lending in Indianapolis at 866.690.4920 or via their online form. They can help you find the right mortgage solution based on your credit history to fit your individual needs.

Photo credit: iStockphoto/Marekuliasz, Pixels Away