Having good credit helps you to get a low interest rate on your mortgage.  Jed Jones (owner of Jed C. Jones consulting) reveals the truth about five credit myths in his article, "Improve Credit Rating- Dispelling 5 Myths".  These important issues are summarized below:

1.  Improving your Credit Score can help you financially

Some people are under the impression that raising their credit score will not help them.  The truth is, the better your credit score is the better interest rate you will be able to get. 

A low interest rate will save you money on your monthly mortgage payments and save you money over the life of your loan.  A good credit rating will give you more flexible options with the type of loan you qualify for- a Conventional Fixed rate mortgage vs. an Adjustable Rate mortgage whose interest rate will increase.

2.  Keeping credit cards will help your credit rating.

How many times have you heard that the number of open credit cards you have will lower your credit rating?  Well, it just isn't true. Closing your credit cards can actually lower your score as 30% of your score is based on the actual amount of debt you owe vs. the amount of credit given to you.  Cards with a low or zero balance will help to equalize or lower your ratio of available credit to owed money. 

3.  Diversify your Debt

An auto loan, a bank credit card, and a store credit card will show that you have been offered credit for different types of loans.  This is important, as 10% of your credit score is determined by the type of debt you are carrying. Stay current with your payments and choose loans with lower interest rates.

4.  Always try to fix errors on your credit report

Once every 12 months, you can request your credit report for free without it damaging your credit.   Your credit report will show you any reported late payments or delinquencies.  If you see anything that is incorrect, you can file a claim to have the errors removed from your credit report.  If you see late payments on your report, you can try to make payment arrangements with the company making the claim and then ask them to remove the late payments from their report.

5.  Applying for credit cards can help your credit rating

Another common myth is that applying for more credit cards will hurt your credit rating.  When you apply for credit cards it helps to show an increase in the amount of credit extended to you. This helps to increase your score.  What you do not want to do is to apply for a lot of credit and then use it all, especially credit with high interest.  If you receive credit cards with a low interest rate, use them instead of cash and pay off your purchases right away.  If you receive credit cards with a high interest rate keep them but do not use them.

Keeping your credit rating high is a sure way to widen your housing choices and mortgage options.  A great resource is the Federal Trade Commission's website. The site provides a template letter to dispute errors on your credit report, where to investigate bankruptcy and credit counseling agencies, and self-help credit repair tips.

Posted by Rebecca D. Levinson

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