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What is a single word for a person who, as a habit, exaggerates a lot when relating information?
So for example, they relate something that happened but exaggerate so much that they are including clear falsehood and they are well known for doing that.
This kind of behavior actually is a recognized psychiatric disorder. Such a person is known as a pathological liar, a compulsive liar, or a mythomaniac. See this definition of pseudologia fantastica.
Drama Queen. Someone who turns something unimportant into a major deal. Someone who blows things way out of proportion when ever the chance is given.
Embroiderer, exaggerator, dramatist, fabricator, embellisher, and hyperbolist. Some dictionaries might not list the last two, but some do, such as Collins.
The most accurate term is Bullshitter but that is definitely not polite.
A more polite way to describe them would be to say that "they tell tall tales"
A tall tale is a story with unbelievable elements, related as if it were true and factual. Some such stories are exaggerations of actual events, for example fish stories ('the fish that got away') such as, "that fish was so big, why I tell ya', it nearly sank the boat when I pulled it in!"
Those two terms could be more accurate than fabulist, fabricator etc as those words imply that the person making up the facts expects to be believed or believes those made up facts themselves.
If someone is telling a story, and alters the facts to make the story better, even if they know that their audience knows the true facts behind the story, they may not be trying to deceive anyone, but just to improve the story so that it is more amusing.
Overstater or braggart could be the words you're looking for.
To "spin yarns" or to be a "yarner" are two ways to describe the action and the actor of exaggeration. A "yarn" is a fantastic tale that carries on for the purpose of entertainment and not accuracy. It's origins, per etymonline, are in nautical slang.
The phrase to spin a yarn "to tell a story" is first attested 1812, from a sailors' expression, on notion of telling stories while engaged in sedentary work such as yarn-twisting.
Histrionic. Especially if the information that is being exaggerated involves them. Anything that gets them attention though. Example: a "good friend" passed away and this person seems very distraught. In actuality, they only met the deceased person once or twice.
