In this video, I'm gonna show you nine credit score myths that may be
holding you back from buying a house.
Look, credit scores are complex and sometimes really overwhelming.
And if you overcome these myths, it's gonna be easier for you to
purchase a home and also do it with the most savings possible.
So here's why this matters, is you want an easier loan approval.
Nobody wants to go through the home buying process and it to be really
complex and really difficult because of where your credit score is at.
Also, you'll get lower rates and lower costs, lower closing costs
when you have a higher credit score.
So myth number one is that shopping for a mortgage hurts your credit score.
I hear this over and over again.
Somebody gets a pre-approval and then they say, I don't want to
get another pre-approval cause I'm afraid it will hurt my credit score.
Okay, so let's back up for a second and understand the difference between these
two different types of credit pulls.
All right, so you need a credit pull to get a mortgage approval.
There is what's called a soft credit pull and a hard credit pull.
The way a soft credit pull works is it has lower accuracy, okay?
Cuz it's based on likely what's called a Vantage Scoring Model.
It's not going to show up on your credit report, and it's used for when
you're getting like an estimated kind of pre-qualification to see a general
idea of what's on your credit score.
A hard pull is going to be extremely accurate.
It's going to be listed on your report as a credit inquiry, and it's used for a real
pre-approval, so you need a hard pull to be able to get a mortgage pre-approval.
Now, the problem here is this is where people have the fear of, oh
no, it's on my credit report, and is this going to impact my score?
So first of all, the CFPB, this is the regulatory body that
oversees extensions of credits.
In this case, getting a mortgage preapproval says you have a 45-day window,
you said they say within a 45-day window, you can have multiple lenders check your
credit without any additional impact.
Your score.
Effectively, you have 45 days for unlimited mortgage inquiries.
Okay?
So if you get one today, you can get five more tomorrow, within the next
week, within the next two weeks, and it will only count on your.
As one inquiry.
Okay.
Those other inquiries will be listed, but it won't impact
your score over and over again.
It'll count as a one inquiry.
And then if we look at Experian to see, how much does an
inquiry impact your score?
It says less than five points, so zero to five points.
They say you can expect a hard inquiry to temporarily decrease your
credit score by five points or less.
According to FICO, but if you have good credit, your
score may drop less than that.
Okay, so ultimately this myth that shopping for a mortgage hurts your
credit score, it absolutely does not.
You need a hard credit pull to get an actual realistic and reliable preapproval.
Okay?
Myth number two is vantage or soft pull.
Don't matter, right?
Just like we talked about these soft pole methods up here, they have lower accuracy,
which is why people tend to prefer finding out what their actual credit score is.
The soft pole may be off by a few points, may be up off by 10 points, 20 points.
It really depends on your situation, but a lot of people think that they
don't want to have advantage score or a soft pull score because they think
it's not gonna be helpful for them.
Now let's run through some quick definitions really quickly.
Each company has multiple versions of soft and hard credit pulls, but
commonly when we're talking about a vantage score, this is what's the most
common soft pull scoring algorithm.
FICO also has soft pull algorithms, but it's the most common hard
pull algorithm that's going to be used by mortgage lenders.
So when you're working on credit, you only really need to look
at the momentum of your score.
I don't know why, but for some reason, people think when they're working on
their credit, they need to know exactly what their score is, and we don't
really need to know exactly what it is.
It doesn't really matter if we're 10 points off because.
We can get our exact score at a place like MyFICO.com if you want.
That's the only place that you'd be able to pull your own score.
That's going to be exactly what a mortgage lender is gonna pull.
And it's more expensive if you go through a company like that.
So you absolutely can.
But what we really wanna know is when we're looking at our score and when
we're working on our credit report or improving our credit score, is
how do our actions impact our score?
We want to get feedback to see, are we on the right track?
Are we not on the right?
Or are things stable or is our credit score not moving?
So momentum gives us the feedback that we're on the right track.
Not to mention, when we look at something like a Vantage score, this
has no impact to your credit score, and it's a lot cheaper to look at
than something like a FICO score.
Now an exact score is really only helpful if we're on the edge of
qualifying for a loan program.
For instance, conventional loans have a minimum of a 620 score.
So maybe you're, we're around the 619-ish range and we want to get that one extra
point and make sure that we have it so that we can qualify for something like
a conventional loan in that instance.
Absolutely.
Maybe you want to look at your exact score.
But looking at exact score costs more money and there's really
not a big need to look at that.
So here's where to get one.
A soft credit pull is on sites like things like Credit Karma or all
those other sites where you can get your credit report for free.
Another one is your credit card dashboard.
If you have a credit card, likely they show you your current
score with a soft poll method.
And then another one is ScoreMaster.
So this video is sponsored by ScoreMaster and you can get a seven
day trial at ScoreMaster.com/Kyle.
And this is what I personally use.
So when you first open your ScoreMaster dashboard, it's
gonna show you three tools.
You have your score tracker, so this is gonna show you that, again, that soft
pull, so you can track the momentum of your score and how that changes over
time, which is exactly what we want to see when we're actually doing our own
work on adding points to our credit.
Also ScoreBuilder and ScoreBoost.
So, ScoreBuilder shows us the actions that we can take.
So inside a score builder, it's going to walk us through a long-term
plan to get us on the right track with our score and then score boost.
What this can do is show us the payments that we can make on our
current accounts and how many points can be added to our credit score.
So we can actually take a look in here at where current score might be at, and
then also take a look at our different accounts and how much we could pay and
how it would impact our credit score.
So you can see an additional 25 points here by paying $3,300
in our test account here.
And it shows you exactly which accounts, and then the payment
amount to get an additional six points pay by a specific date.
So again, that's seven day trials at ScoreMaster.com/Kyle.
Now, myth number three is that credit work is hard.
Now most people think there's like some sort of trick or hack to get it
right and the truth is credit is too complex to do on your own efficiently.
You absolutely can do it on your own if you'd like to.
I would try to do it on my own, and it's extremely complex.
You're trying to do all this research to figure out what to do, and ultimately,
it's best to either have software or human guidance through the process
because again, you can absolutely do the work on your own, but if you wanna
get to the spot where you want to get quicker it's easier to have some guidance.
So there's two primary ways to get guidance.
Is either through working with a credit coach or through ScoreMaster
or another credit simulation software.
Myth number four, is it The only way to fix my credit is through expensive.
Coaching.
Okay, so I wanna walk you through a couple different credits, improvement
tools or strategies that people use.
One that I see a lot on, like social media, Instagram, and other
things is like credit hacking.
Where they're like, pay this company money and they're going to
hack your credit report and remove whatever, or add whatever accounts.
These are scams, okay?
Please don't fall for these things.
There are a lot of companies out there that will say they can improve your credit
score and basically they're going to take money from you and not do anything.
Any company that says we will do the work for you is likely going to be a scam.
Okay?
That's not how credit, even credit coaching works, you still have to
put in work on your own credit score.
Also low touch coaching.
So there are a lot of sites or a lot of companies that
will offer low touch coaching.
So it's gonna be credit counseling or credit coaching for a lower cost.
And you may have an advisor with that, but often some of what can end up
happening is they might just send out like blanket mailers to file disputes,
or they give you some general guidance that doesn't offer really great results.
Another option is high-touch coaching, and this is great for complex credit
issues or if you really need to get a really big increase in your credit
score in a short amount of time.
But these can be pretty expensive.
Another one is research-based.
Do-it-yourself options.
This can be time consuming and not always the most efficient.
So this is if you're combing three different articles and trying to
understand how to do it yourself.
It's absolutely a strategy, but it can take a lot of time, and again,
it may not be the best path forward in the quickest amount of time.
Another one is software based DIY tools, and this is great for removing
errors and finding your best score.
So you know, two examples or brought a couple examples here.
You're gonna get a soft pull from your credit card info.
They might have some help there.
You can use score master like I mentioned in this video.
Another one too is your loan officer may have access to credit
simulation software as well that can help you through that as well.
Another one.
Another strategy that a lot of people need is time on their side to get high scores.
And this is often for people who don't really have a lot of credit work
that they needed in the first place.
Maybe they're at a 700 score and they want to get to a an 800 or a 740 or
whatever, and often for those people, it's just going to take time on your account.
For your score to increase over time.
Myth number five is that you need a good score to buy a house.
These are the minimum credit scores needed for the most common types of loans.
For conventional loan, you need a 620 credit score.
For an FHA loan, you need a 500 credit score.
For USDA, you need a 500 credit score, and for VA you need 500 credit score.
So you don't need a super high credit score to qualify for a mortgage.
Now, there are a lot of lenders who won't let you do a loan with
these credit scores, and I'll explain that here in a second.
Okay, so what I would suggest is if you're in a spot where your credit is on the
lower side, use a mortgage as a bridge.
So what you can.
Is still purchase a home and after you purchase a home, your credit
score as you pay down your mortgage is going to increase over time.
And then what I would suggest is in that period of time is as you're
working on your credit, is maybe you got an FHA loan cuz you had a lower
credit score and you buy the house.
And then you need to start working on your credit so that you can refinance into
something like a conventional loan, which is gonna have better interest and mortgage
insurance savings long term for you.
Now, ultimately this is a personal choice.
What I would do is if I was in a situation where I had a lower credit score, is I
would first ask what brought me to the place of having the low credit score?
If there's some habits in your life or there's some budgeting problems, or maybe
there's some other financial circumstances that is going to keep you having a
lower credit score, then maybe it's not the best time to purchase a house.
What I would suggest is only look at purchasing a house.
If you have a credit, that's middle to on the lower end is if you know that you're
gonna be able to continue working on improving your credit score in the future.
We wanna correct those habits before we purchase a house.
Okay?
So it's a personal choice that is up to you.
Now, there's this thing called lender overlays, where a lot of lenders will
actually come in and say, actually, we won't do a conventional loan
unless you have a 640 score or a FHA loan, unless you have a 640 score.
So those are called Overlays, and what you can do is talk to
multiple different lenders to see what other options you may have.
But these are the bare minimum here.
And my team works with lenders that go all the way down to these minimums.
So if you're running into Overlays with other lenders, reach out to my team.
We can schedule a free home loan consult.
The link is in the description, and we can connect you with lenders who go
all the way down and don't have these Overlays if you're running into that prop.
Myth six is if you have bad credit, you shouldn't buy a house.
This is always a fun one.
Anytime I make a video about credit, there usually ends up being somebody who
says if someone has a bad credit score, they're a bad person and shouldn't be able
to buy anything ever again in the future.
And that's a very interesting perspective on life that I don't agree with.
Ultimately, credit scores are a made up system that only show how you pay
back debt, please don't forget that credit scores are a game made by
three companies that have a monopoly on the credit reporting system.
It's all made up, okay?
This isn't an indication of how good you are as a person or
really a true indication of how well you are handling finances.
They don't consider the fact that you may pay your rent on time for the past
10 years that you paid all your other bills on time or your budgeting habits.
There really is no moral quality to a credit score.
It's only a determination of risk used by other people who extend credit.
If you get a new credit card or a new auto loan or a new mortgage.
Plenty of good people have bad credit scores because
of things like medical debt.
You may get into a car crash or develop an illness.
I worked with a client once who got into a car crash, had to be care flighted,
had a hundred thousand dollars medical bill from the helicopter flight.
And he of course could not pay that because he was a disabled veteran and
had nowhere near enough money to be able to pay a hundred thousand dollars
in medical debt that just sat on his credit report and he had a low 500
credit score, and we were able to get him into a home with a VA loan.
Okay?
So it's like that he's not a bad person because he happened to get an accident
and couldn't pay for a helicopter flight.
That doesn't mean he doesn't deserve a quality shelter.
Okay.
Also, people can be in abusive relationships or have negligent
partners, and that can impact their credit score based on maybe somebody who
was in control of finances and wasn't paying things on time or other issues
that prevent somebody from working.
There's plenty of other life circumstances that can cause a lower credit score to
otherwise responsible and good people.
So people with good and bad credit still should be able.
Quality shelter that allows 'em to build equity without their
rent increasing year after year.
Okay.
Myth seven is paying off collections will help my score.
Paying off collections can actually hurt your score by updating the date
of last activity on your credit report.
I know the sounds counterintuitive where you think pay my collections off, then
my credit score will finally go up.
Unfortunately, that's not the way that it works.
A pay for deletion is the best solution for this, where you actually
negotiate with the collection agency to say, Hey, if I pay this, can it
be deleted for my credit report?
That doesn't always work.
Another option is allowing time to just lessen the impact of the collection
and focusing on other areas of your credit report to work on Myth eight.
Similar is that closing a credit card is good.
So closing a credit card actually is going to lower the average age
of accounts on your credit report and will actually lower your score.
You would think, man, if I don't use credit, then it's going to be better
for my score, and that's not the case.
Keep your credit cards open if you need to keep it active, just
go buy a pack of gum at a gas station and then pay it off, okay?
You're not gonna pay any interest on it.
That's gonna make sure your credit card stays open and has that just the average
age of accounts on your credit report.
And then myth nine is that I can just pay someone to remove stuff
I don't want on my credit report.
And unfortunately I see this a lot where people think I can just go hire somebody
to take care of the problems on here.
No person or service can remove accurate information from your credit report.
Okay.
So unfortunately, if you have a late payment, let's say you had an auto
loan and you didn't pay it when the due date came up, there is no way to remove
that if that's what actually happened.
There's no way for that to go away.
You can't pay a service.
You can't pay a software.
You can't pay a person to remove accurate information.
What you can do is remove inaccurate information and it's done
through what's called a dispute.
So you can dispute inaccurate information to get it removed.
What this does is it opens up a short investigation as what it's called on
your credit report, where the creditor then can come back with proof about if
that debt or whatever you're arguing on your credit report is accurate.
And so what you can do is actually use a tool like Score Master to make it easier
to file actions on your credit report.
And the Score Master software makes it easy to help file
some of these actions for you.
So you can do things like fixing credit, reporting errors, getting goodwill
corrections, hang off, or negotiating small debts, or remove identity theft.
And so what it will do is walk you through the different accounts that
are impacting your credit score.
You can then go to take actions on those different account and in here you can
learn more about how this works, but for instance, maybe there was an error
that I recognize on a Citibank account.
This is not my account.
This is a test account here, but maybe there's an error here and I
can click fix error and select a reason why and add more details into
why this is an error on the report.
So ScoreMaster can take care of those actions for me.
So if you'd like more guidance with a software base approach to
add more points to your score, you can get a seven day trial for
ScoreMaster at ScoreMaster.com/Kyle.