What is a single word for a person who, as a habit, exaggerates a lot when relating information?

Solution 1:

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.

Solution 2:

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.

Solution 3:

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.

Solution 4:

Overstater or braggart could be the words you're looking for.