We all have access to massive amounts of information via media and the internet. Many times that information can be misleading or outright wrong. Let’s explore some of the common myths I regularly experience with regards to credit and mortgage loans.
Myth: Using your debit cards will help build your credit.
Wrong. Debit cards are just like your bank account; they do not get reported to the credit reporting agencies in any way, shape, or form.
Myth: Types of credit don’t matter, it’s all the same.
Types of credit do matter. For example, more weight towards your credit score is given to an American Express card than a sub-prime Visa or MasterCard. Also, the credit scoring system gives more weight to Visa and MasterCard accounts than they do furniture store cards or gas store cards. The reason is the credit agencies feel that it is much easier to attain a less traditional higher interest rate account than a major credit card.
Myth: Paying off an old collection or charge off will increase your credit score.
This is a major myth, and it gets a lot of traction because it seems to make sense. However, when you pay off an old collection or charge off, the “date of last activity” becomes the most recent activity, and therefore, the creditor of that account get to report that item for an additional seven years! As credit accounts mature, they affect your credit score less and less. Please don’t interpret this to mean that it’s not good to pay off old debts. You should. However, if you are purchasing or refinancing a home, first speak with your mortgage consultant. Discuss with them the merits of the strategy first before you pay off any old lingering debts.
Myth: A co-signer is not responsible for the debt.
Wrong! The co-signer is every bit as responsible for the debt as the primary account holder. This goes for the mortgage as well. A co-signer and the principal applicant are looked at virtually identically.