Anyone thinking about buying a home knows having a good credit rating is the key to obtaining a mortgage. But applying for a home loan or any other type of credit, such as a car loan, credit card, cash-back card, or frequent-flyer account, has its consequences.

The very act of having a potential lender “pull” your credit score affects the score itself, sometimes negatively, sometimes positively. Late payments and early payments can have an impact as well.

Credit repairs can take months

Navigating your credit landscape can be tricky. One inadvertent wrong move on your end could lead to requesting credit repairs, which can take months and potentially delay your homebuying efforts.

To clarify the subject, we talked to Greg Schulte, our Chief Financial Officer and Certified Public Accountant. Here’s his advice for tipping the scales in your favor when it’s time to apply for the loan that can change more than just your address.

Why is having good credit important?

It’s important because it’s how you’re assessed for major purchases in your life, like your home, your automobiles–anything you take out a loan for–you’re going to be evaluated across the entire platform of everybody else, based simply on your credit score. It can affect significant terms of the loan, like your interest rate or up-front points, or could preclude you from getting financing altogether.

What’s the difference between a credit score from any of the three credit-reporting agencies (Equifax, Experian, and TransUnion) and a FICO score? What does FICO stand for?

They all have their own algorithms that they run to calculate it, so your score will be slightly different across the three credit bureaus, but generally in the same category. So they’re usually pretty close. One agency might have picked up something that another hasn’t. That’s why you would want to look at all three of the agencies to evaluate your score, because one may be incorrect, two may be correct, or all three could be incorrect. When applying for a loan, the creditor will typically query all three agencies.

FICO stands for Fair Isaac & Company, the company that derived the algorithm for the score. The higher your FICO score, the better loan terms you get.

The higher your FICO score, the better loan terms you get. Share on X

The inquiries that affect your score

Why does pulling your credit score yourself or when applying for any loan (house, car, credit card) impact your credit score?

If you pull it yourself, it shouldn’t affect your credit score. If you’re going to apply for a loan and someone else is pulling your credit score, that will negatively impact your credit because you’re theoretically looking to increase the amount of debt that you have. So that can be a negative mark on your credit record.

When do the credit bureaus first begin to calculate your score?

As you go out and obtain debt, like credit cards, and establish credit for yourself, you get reported to the credit agencies. So simply applying for a credit card is a reportable event to the credit agency.

Simply applying for a credit card is a reportable event to the credit agency. Share on X

Late payments can hurt

Does paying credit bills on time and over the minimum amount help boost your credit score faster?

They do. It’s probably the No. 1 thing to keep in mind: Pay your bills on time and pay at least the minimum monthly amount. You probably don’t want to pay too early, but just make sure you pay it on time. Even a day late can penalize you. The only thing paying earlier will help is that it reduces the amount of credit you owe.

So look at what’s on your credit report in terms of your outstanding debt on credit cards, loans on your car, and other purchases, and then lower the amount of debt. That can improve your credit score. Start making sure going forward that you’re paying on time. You can’t fix a credit report overnight, but over time you can fix it by paying all of your obligations on time. Usually, after a couple of months, you’ll start seeing some small increases in your credit score. But clearly, after a year or 18 months, you’ll see some noticeable positive changes.

It varies from company to company because it’s algorithm-specific, so no one knows the exact concept that underlies it. It’s proprietary to FICO. Each of the three credit-reporting agencies can make their own adjustments to it as well.

If you suspect an error on a report, how can you get it corrected?

It’s somewhat difficult. You need to contact all three agencies separately, if it’s on the three different reports, to file the complaint. They’ll research the complaint. It can take a month or longer to get it resolved, so don’t put it off. It depends on the creditor, too. They’re contacted as well. If it’s clearly an error, it can be quicker. If it’s a disagreement between the borrower and the creditor, it may take a while to get cleaned up.

No magic fixes

What about companies who say they can clean up your credit for you?

I would proceed very carefully with that. There’s no such thing as a magic fix. There are reputable companies out there that will help you take the steps to clean up your credit report, but it’s not just something you can pay somebody to do overnight. I suggest anybody looking at that to go through the Better Business Bureau or look for a very reputable company that will help you improve your credit score. Do not go to someone who says they can fix your credit overnight if you pay them a certain amount of money.

There’s no such thing as a magic fix. There are reputable companies that will help you take the steps to clean up your credit report, but it’s not something you can pay somebody to do overnight. Share on X

Are certain lenders easier to get credit from than others? If so, are there catches like higher interest rates and down payments?

You want to make sure you’re getting the best deal you can get: the lowest interest rate, if it’s a credit card, the frequent-flyer miles, cash-back rewards, low annual fees. Don’t just wait for the offers to come to you in the mail. Do your research and compare. There are websites that will help you see what their separate terms are. Same with home loans. Look for the best interest rates, the best points, which are the upfront fees that you pay on a loan. If your credit score is good enough, you should be able to get the loan.

What’s the typical down payment for a home loan now?

It really depends on the loan. Lenders typically like to see 20 percent, but you still can find loans out there for less than that. But you’re probably going to pay private mortgage insurance, a higher interest rate, and higher upfront fees. So it’s a give and take.

HomeServices Lending: world-class 

What are the advantages of using our affiliate, HomeServices Lending?

It’s seamless, one-stop shopping. Buyers can work with a world-class agent as well as a world-class loan officer. They understand the buyer’s needs, the buyer’s position, what they are looking for to make sure they’re getting the best loan possible. Buyers are free to shop for a loan wherever they want to. They’re welcome to shop to find the deal that’s best for them. But we highly recommend HomeServices Lending as a preferred source. HomeServices Lending will even do a complimentary second opinion on a loan, just to make sure it is the best loan available to the buyer. I highly recommend this free service.

Ready to buy a home? Connect with one of our real estate agents or begin your home search online.