As a first-time homebuyer, you’re likely focused on building your credit so that you can qualify for the best possible mortgage rates. However, there are many myths out there about what it takes to build credit, and believing them could actually hurt your score in the long run. In the below article, we’ll debunk some of the most common credit-building myths that first-time homebuyers may come across.
Myth 1: Closing Old Credit Accounts will Help Your Score
Many people believe that closing old credit accounts will help improve their credit scores. However, this is actually a myth. In fact, closing old accounts can actually hurt your score by reducing your overall available credit and shortening the length of your credit history. Hence, it’s best to keep your older accounts open and continue to use them responsibly.
Myth 2: You Need to Carry a Balance on Your Credit Cards
Some people believe that carrying a balance on their credit cards is necessary in order to build good credit. However, this is not true. In fact, carrying a balance can actually hurt your score by increasing your debt-to-credit ratio. Thus, it’s better to pay off your credit card balance in full each month if you want to improve your credit score.
Myth 3: Checking Your Own Credit Report will Hurt Your Score
Many people are afraid to check their own credit reports because they believe it will hurt their scores. However, this is also a myth. Checking your own report, known as a “soft inquiry,” has no impact on your score whatsoever. So, feel free to check your report as often as you need to stay apprised of your credit health.
Myth 4: Paying Off Collections will Improve Your Score
If you have collections accounts on your credit report, you may think that paying them off will automatically improve your score. Unfortunately, this is not always the case. While paying off collections can help improve your financial standing overall, it may not have an immediate impact on your credit score. With that being said, it’s still a good idea to pay off any collections you have as soon as possible.
To Sum Up
As a first-time homebuyer looking to build good credit, it’s important to be aware of these common myths and avoid falling for them. Instead of relying on misinformation or hearsay, work with a professional for a bad credit mortgage in Ontario who can provide guidance and support as you navigate the complex world of personal finance. This way, you can make informed decisions about your credit and get on the path to homeownership. Good luck!