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You Know a Lot about Your Credit Score. True or False?

You Know a Lot about Your Credit Score. True or False?

If you’re planning to buy a home and you’re going to be applying for a mortgage, you’ve probably been advised to pay more attention to your credit score. But, once you find out what your credit score is, what if you want to work on improving it? Where do you start?

Do you really know what factors contribute to your credit score? Test your financial knowledge by taking a look at these five financial true or false statements about your credit score:

1. Similar to an educational grading scale, credit scores range on a scale from 0-100, with 100 being an A+ kind of credit score. True or false?

F as in false… as in, if you actually believe that statement, you may be failing your credit score! Joking aside, credit bureaus usually rank a person’s credit score between 300 and 850. When it comes to lenders, a higher score equals lower risk, which translates into greater probability for mortgage approval. When it comes to a “good” credit score, every lender is different, but many would consider a credit score over 700 to be pretty good.  

2. The greater your income, the greater your credit score. True or false?

False. You may think that if you make more money, you’re bound to have access to more credit, but that does not mean that your credit score is going to be any better than someone who makes less money. In fact, having access to more credit could put a person in danger of spending more, which may make it harder for them to repay their balances, in turn lowering their credit score.

3. Closing inactive credit accounts is a great way to boost your credit. True or false?

False again. Having available credit is not a bad thing. Actually, closing credit card accounts that you don’t use will lessen your amount of available credit, which could lower your credit score. If you’re looking to boost your credit score, simply pay your credit card bills on time each month and work on paying down balances on the cards that you do use!

4. A missed credit card payment will stay on your credit report for years. True or false?

True. Seven years to be exact. This is why it is so important to pay your credit card bills on time each month. No, one missed credit card payment isn’t going to negatively impact your credit score so much that you could never be approved for a mortgage; but, even one missed payment will linger on your credit report for years to come.

5. If you have a low credit score, you should refrain from opening new credit accounts. True or false?

True! While it may seem like a good idea to get a “fresh start” on your credit by opening a new credit card account and making timely payments on it each month, increasing the number of open accounts you have only makes it easier to run up additional balances that you may have a hard time repaying. The best advice for bumping up your credit score is to focus on your current accounts. Make sure you’re making regular payments to decrease your credit card debts and you will see your credit score improve over time.

There is a lot to think about during the home-buying process and your credit score is just one piece of the financial picture that lenders consider when it comes to granting mortgage approval. Even great credit won’t guarantee that a person will be approved for a mortgage. Similarly, a low credit score may not prevent a person from receiving mortgage approval, either. Frankly, every lender is different, so if one lender denies your mortgage request, another could still grant approval. True story!

This post is sponsored by PA Preferred Mortgage:

Pennsylvania Preferred Mortgage is a full service mortgage banker and is a member of the Prosperity Home Mortgage, LLC family. Specializing in residential and refinance loans, Pennsylvania Preferred Mortgage offers a wide range of mortgage products, including fixed and adjustable rate mortgages, jumbo loans, Federal Housing Administration (FHA) and Veterans Affairs (VA) loans, and renovation financing. Learn more at www.papreferredmortgage.com.