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3 Myths About Your Credit Score

3 Myths About Your Credit Score

03/25/2015 11:20 pm0 comments

How important is your credit score to you? Do you obsess about having a high score or do you not pay attention to it at all? Maybe you aren’t even sure when a credit score is used or what purpose it serves. Oftentimes called a FICO or Fair Isaac score, the credit score is typically known as something that lender’s and other businesses use to determine someone’s ability to pay their bills on time or whether someone should be able to take on more credit. Over the years as I’ve learned more about finances and how to manage money I’ve come to understand that there are some myths that many take as fact regarding the credit score. Here’s several of those myths.

  1. The credit score shows how well off you are financially.   Unfortunately, this is not true mainly because your credit score is mostly related to debt and things like how large of balances on credit you have and how long you have had those balances.   It doesn’t take into account your income or other assets so cannot indicate your net worth.   For example, if you have one million dollars in the bank, have no debt, and your credit score is zero and something you try to rent is based solely on your credit score, you will have a hard time renting.  This is why I think it would be better to have a net worth score be used when looking for a person’s financial stability.
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  2. You cannot get a mortgage without a credit score.   If you’ve never looked into this before you may have thought it would be impossible to get a mortgage without a credit score however that just isn’t true.   Some lenders use a process called manual underwriting to determine if you should be allowed to take out a mortgage.   Not all lenders use this process so you do have to do some research to find one that does and there are some other requirements as well but it is possible to have a zero credit score and still get a mortgage.
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  3. You cannot rent an apartment without a credit score.  It may require a little patience and you will probably have to shop around a bit more but it can be done.  Most apartments will work with you if you provide first and last months rent and a security deposit and explain your situation.   If you have never rented before it may take a little longer but it can be done.

So there you have several credit score myths.  In the future I would like to see lenders, insurance companies, employers, and anyone else using the credit score to start using a net worth score.  This would be a much better indicator of someone’s financial position.

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