You've been told checking your credit hurts your score. That closing old credit cards helps. That you need an 800 score to get a good mortgage rate. All lies.
These credit score myths keep qualified buyers renting for years while home prices climb. Let's destroy these misconceptions and reveal what actually matters for mortgage approval.
Myth 1: You Need Perfect Credit (750+) to Buy a Home
The Truth: The average homebuyer's credit score is 734. FHA loans accept scores as low as 580 with 3.5% down, or 500 with 10% down.
Here's what different scores actually mean for your mortgage:
580-619 Credit Score
- FHA loans available with 3.5% down
- VA loans if eligible (no minimum score requirement)
- Some conventional lenders at higher rates
- Expect 0.5-1% higher rate than top tier
620-679 Credit Score
- Conventional loans become available
- Better FHA rates
- Most loan programs accessible
- Rates about 0.25-0.5% above best tier
680-739 Credit Score
- Good rates on all loan types
- Lower PMI on conventional loans
- More negotiating power with lenders
- Near-best rates available
740+ Credit Score
- Best available rates
- Lowest PMI rates
- Maximum loan options
- Strongest approval odds
As we explain in our FHA vs Conventional comparison, lower credit doesn't mean homeownership is impossible—it just changes your best loan option.
Myth 2: Checking Your Credit Score Lowers It
The Truth: Checking your own credit (soft inquiry) NEVER impacts your score. You can check daily without any effect.
Soft Inquiries (No Impact)
- You checking your own credit
- Pre-qualification checks
- Background checks by employers
- Credit card pre-approvals you didn't request
Hard Inquiries (Minor Impact)
- Mortgage applications: 2-5 points
- Auto loans: 2-5 points
- New credit cards: 5-10 points
- Personal loans: 5-10 points
The 45-Day Rule: Multiple mortgage inquiries within 45 days count as ONE inquiry for scoring purposes. Shop freely during this window!
This is why we recommend getting multiple quotes, as detailed in our guide on Negotiating Your Mortgage Rate.
Myth 3: Carrying a Balance Helps Your Credit
The Truth: Carrying a balance costs you interest and can hurt your credit. The credit bureaus want to see you USE credit, not carry debt.
What Actually Helps
- Using cards regularly
- Paying in full each month
- Keeping utilization under 30% (ideally under 10%)
- Automatic small charges (Netflix, Spotify)
The Utilization Sweet Spot
- 0% utilization: Not ideal (shows no usage)
- 1-9% utilization: Optimal for scores
- 10-29% utilization: Good
- 30-49% utilization: Hurts score moderately
- 50%+ utilization: Significant score damage
Managing utilization becomes crucial when saving for a down payment. Our guide on Emergency Fund vs Down Payment explains balancing these priorities.
Myth 4: Closing Old Credit Cards Improves Your Score
The Truth: Closing old cards usually HURTS your score by reducing available credit and shortening credit history.
Why Closing Cards Hurts
- Reduces total available credit
- Increases utilization ratio
- Eventually shortens average account age
- Removes positive payment history
When to Keep Cards Open
- No annual fee: Always keep open
- Oldest card: Protects credit length
- High limit cards: Helps utilization
- Cards with perfect payment history
When Closing Makes Sense
- High annual fees you can't justify
- Temptation to overspend
- Fraudulent accounts
- Divorce situations requiring closure
Myth 5: Paying Off Collections Removes Them
The Truth: Paid collections remain on your report for 7 years from the original delinquency date. However, paid collections look better than unpaid ones to lenders.
Collection Account Reality
- Unpaid collections: Major negative, ongoing damage
- Paid collections: Still negative, but improving
- Deleted collections: Best outcome (negotiate this)
- Disputed collections: May delay mortgage approval
The Pay-for-Delete Strategy
- Get deletion agreement in writing BEFORE paying
- Never admit the debt is valid
- Negotiate for 30-50% of original amount
- Get confirmation of deletion after payment
- Dispute if not removed within 30 days
Myth 6: Income Affects Your Credit Score
The Truth: Credit scores don't consider income at all. A millionaire with bad payment habits has worse credit than a minimum-wage worker who pays on time.
What Credit Scores Actually Measure
- Payment history (35%)
- Credit utilization (30%)
- Length of credit history (15%)
- Credit mix (10%)
- New credit (10%)
However, income matters enormously for mortgage approval through debt-to-income ratios. Learn more in our guide on the 28/36 Rule for Affordability.
Myth 7: You Need Multiple Types of Credit
The Truth: While credit mix affects 10% of your score, you don't need every type of credit. Two or three types are sufficient.
Credit Types for Mortgage Qualification
- Essential: At least 2 credit accounts
- Helpful: Mix of revolving and installment
- Not Required: Auto loans, personal loans
- Avoid: Opening new accounts before mortgage
First-time buyers often worry about thin credit files. Our First-Time Buyer's Guide addresses building credit strategically.
Myth 8: Bankruptcies Make Homeownership Impossible
The Truth: You can qualify for a mortgage 1-4 years after bankruptcy, depending on the type and loan program.
Bankruptcy Waiting Periods
Chapter 7 Bankruptcy
- FHA: 2 years
- VA: 2 years
- Conventional: 4 years
- USDA: 3 years
Chapter 13 Bankruptcy
- FHA: 1 year of payments
- VA: 1 year of payments
- Conventional: 2 years from discharge
- USDA: 1 year of payments
Special programs like FHA's Back to Work program may shorten these periods with extenuating circumstances.
Myth 9: Student Loans Kill Your Chances
The Truth: Student loans are considered "good debt" and don't inherently hurt mortgage qualification. It's the payment amount that matters.
How Lenders View Student Loans
- Income-driven payments: Often use 0.5-1% of balance
- Deferred loans: Still counted (usually 1% of balance)
- Regular payments: Actual payment amount
- Paid ahead: May use $0 if 12+ months ahead
The key is your overall debt-to-income ratio. See how student loans factor in with our analysis of current market conditions.
Myth 10: Credit Repair Companies Can Fix Everything
The Truth: You can do everything a credit repair company does—for free. They can't remove accurate negative information.
DIY Credit Repair Strategy
- Get free credit reports from annualcreditreport.com
- Dispute errors online with each bureau
- Send goodwill letters for late payments
- Negotiate pay-for-delete on collections
- Add yourself as authorized user on good accounts
- Request credit limit increases
Most improvements take 30-90 days to reflect. Plan accordingly when timing your home purchase—see our guide on the Best Times to Buy.
The Rapid Credit Improvement Plan
30-Day Quick Wins
- Pay down cards to under 30% utilization
- Become authorized user on established accounts
- Dispute obvious errors
- Pay off small collections
60-Day Improvements
- Get credit limit increases
- Pay down to under 10% utilization
- Set up automatic payments
- Open secured card if needed
90-Day Optimization
- Goodwill letters start showing results
- Disputes resolved
- New positive payment history established
- Utilization optimized across all cards
Understanding Credit Score Models
Different scores for different purposes:
FICO Score Versions
- FICO 2, 4, 5: Used for mortgages
- FICO 8: Most common general score
- FICO 9: Newer, less commonly used
- FICO 10: Latest, not yet widely adopted
Your mortgage score is typically your middle score from all three bureaus, and can be 20-40 points different from what Credit Karma shows you.
Credit Myths That Cost You Money
Myth: Wait Until Perfect Credit
Reality: Every year waiting while prices rise 5% costs more than a slightly higher rate. A $300,000 home becomes $315,000 next year.
Myth: All Lenders See Same Score
Reality: Scores vary by 20-50 points between bureaus. Shop multiple lenders to find who uses your best score.
Myth: Pre-Approval Hurts Credit
Reality: All mortgage inquiries within 45 days count as one. Get multiple pre-approvals to compare. Learn the process in our Pre-Approval Guide.
Special Credit Situations
Divorce Credit Issues
- Remove ex-spouse as authorized user
- Refinance joint debts individually
- Monitor accounts during separation
- Get court orders for debt responsibility
Self-Employed Credit Challenges
- Keep business and personal credit separate
- Don't write off too much income
- Maintain excellent payment history
- Document all income sources
Immigrant Credit Building
- Get ITIN if no SSN
- Start with secured credit card
- Add utility payments to credit report
- Consider credit builder loans
The Truth About Mortgage Credit Requirements
Here's what actually matters to mortgage lenders:
- Payment History: No late payments in past 12 months
- Stable Income: 2 years employment history
- Down Payment: Even 3% down works with good credit
- Debt-to-Income: More important than credit score
- Reserves: 2-6 months of payments saved
Different loan types have different flexibilities. VA loans have no minimum credit requirement, while Jumbo mortgages typically need 700+ scores.
Action Plan: Your Next 30 Days
Week 1: Assessment
- Pull all three credit reports
- Check actual mortgage FICO scores
- Calculate current utilization
- List all negative items
Week 2: Quick Fixes
- Dispute any errors found
- Pay down high-utilization cards
- Request credit limit increases
- Stop all new credit applications
Week 3: Negotiations
- Contact collections for pay-for-delete
- Send goodwill letters for late payments
- Become authorized user if helpful
- Set up automatic payments
Week 4: Preparation
- Get pre-approval to see where you stand
- Compare multiple lender offers
- Calculate true affordability
- Plan timing for home purchase
The Bottom Line on Credit Scores
Perfect credit isn't required for homeownership. Understanding what really matters—and what doesn't—empowers you to buy sooner and save money.
Key truths to remember:
- 580 credit score can buy a home today
- Checking your credit helps, not hurts
- Carrying balances costs money for no benefit
- Old accounts should stay open
- Most credit issues are fixable in 30-90 days
Stop letting credit myths keep you renting. Use our Mortgage Calculator to see what you qualify for today, and our Closing Process Timeline to understand next steps.
Ready to improve your credit strategically? Start with understanding true costs of homeownership so you can plan your finances accordingly. Your dream home is closer than these myths led you to believe.