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Credit Scores Fact vs. Fiction: Part 1 of 2

FICTION: Inquiries from multiple mortgage lenders while shopping for a loan will lower my credit score.

FACT: Looking for a mortgage or auto loan may cause multiple lenders to request your credit report, even though you're only looking for one loan.  To compensate for this, the score ignores all mortgage and auto inquiries made in the 30 days prior to scoring.  If you find a loan within 30 days, the inquiries won't affect your score while you're rate shopping.  In addition, the score looks on your credit report for auto or mortgage inquiries older than 30 days.  If it finds some it counts all those inquiries that fall in a typical shopping period as just one inquiry when determining your score.

FICTION:   Paying old collection accounts will improve my credit score.

FACT:  In most cases, paying an old collection account will not increase your credit score.  It is more likely to decrease a customer's credit score because a collection is viewed the same, whether it is paid or unpaid.  The difference is the last activity date.  The older the date, the less impact it has on the current credit score.  If old and the collection is paid, the last activity date is updated and now the account is viewed as recent and will have a negative impact on the overall credit rating.  More weight is given to the recent accounts onthe report.

FICTION:   Credit scores can change only once per month or every 30 days.  

FACT:  Just the opposite is true.  Each creditor reports information to each credit bureau at different times of the month.  This will cause the information and potentially the credit scores to change on a daily basis.  For example.  American Express may report to Experian on the 1st of the month, Equifax on the 15th,  and Transunion on the 25th.  Thorough review of the credit report is needed to determine what caused the score to change from report to report.  (It usually is not the inquiries.)

For more information on credit scores or the mortgage process call Jonathan Rodd, Mortgage Advisor with Century 21 Mortgage.  CALL (802) 683-0812

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