If you’re thinking about buying a home soon, one of the most important financial details to keep an eye on is your credit score. Your credit score plays a major role in determining the types of mortgage loans you qualify for, the interest rates you’ll be offered, and even the size of the down payment you might need. But how exactly do credit scores work, and what can you do to keep yours in good shape?
What Is a Credit Score?
A credit score is a three-digit number that reflects how responsible you are with managing credit. Lenders use this number to assess the risk of lending you money. The most common scoring model is the FICO® Score, which ranges from 300 to 850.
● Excellent: 800 – 850
● Very Good: 740 – 799
● Good: 670 – 739
● Fair: 580 – 669
● Poor: Below 580
Generally, a score of 670 or higher is considered good and can help you qualify for better loan terms.
How Credit Reporting Works
Your credit score is calculated based on information reported to the three major credit bureaus: Experian, Equifax, and TransUnion. These agencies collect data from lenders, credit card companies, and other financial institutions. This information forms your credit report and includes:
● Payment History (35%): Have you paid your bills on time? Late payments negatively affect your score.
● Credit Utilization (30%): How much of your available credit are you using? Lower utilization is better.
● Length of Credit History (15%): How long have you had active credit accounts?
● Credit Mix (10%): Do you have a mix of credit types (credit cards, auto loans, mortgages, etc.)?
● New Credit Inquiries (10%): How often have you applied for new credit recently?
What Gets Reported—and What Doesn’t
The following information is typically reported to the credit bureaus:
● Credit card balances and payment history
● Loan balances and payment history
● Collection accounts
● Bankruptcies and foreclosures
● Hard inquiries (when you apply for new credit)
Items that do not usually appear on your credit report include:
● Rent and utility payments (unless reported through special services)
● Employment status and income
● Debit card usage
Did You Know?
When a car dealership runs your credit, they often submit it to multiple lenders—not just one. This means you could end up with several hard inquiries from a single visit to the dealership. The same can happen when applying for a mortgage through brokers who shop your loan with several banks. This can be done with a series of soft pulls as well, so make sure you ask!
While credit scoring models typically group multiple auto loan or mortgage inquiries made within a short time frame (usually 14 to 45 days) into one inquiry for scoring purposes, each inquiry still shows up individually on your credit report. And hard inquiries remain on your report for two years, even if they only impact your score for about one year.
Before applying for a loan or making a major purchase, ask how many inquiries will be submitted and to whom. Being aware of this can help you avoid unnecessary damage to your score.
How Long Does It Take to Correct a Low Credit Score?
Improving a low credit score takes time and consistent financial habits. While some negative marks can stay on your credit report for up to seven years, you can start improving your score within a few months by taking the right steps:
● Pay Your Bills on Time: Even one missed payment can significantly impact your score.
● Lower Your Credit Utilization: Aim to keep your credit card balances below 30% of your total limit.
● Avoid Opening New Accounts Unnecessarily: Each hard inquiry can lower your score temporarily, and too many inquiries can signal financial instability to lenders.
● Dispute Errors on Your Credit Report: Check your credit reports regularly for mistakes and dispute any inaccuracies.
● Consider a Secured Credit Card or Credit Builder Loan: These tools can help you rebuild credit when used responsibly.
Be Careful Who You Trust to Help
When trying to fix your credit, it’s important to avoid companies and services that promise “quick fixes” or “guaranteed results.” These are often scams or predatory lenders looking to take advantage of people in tough financial situations.
Avoid the following:
● “Payday” and “Title” Loan Companies: These loans come with extremely high interest rates and often trap borrowers in a cycle of debt.
● Credit Repair Scams: If a company asks for large upfront fees or promises to remove accurate negative information from your credit report, walk away. No one can legally remove accurate negative items from your report.
● Loan Sharks and Predatory Lenders: These lenders charge excessive interest rates and fees, making it even harder to pay off debt and improve your financial situation.
● Debt Settlement Companies That Demand Payment Before Providing Services: Legitimate debt relief programs don’t require upfront payment.
Instead, work directly with your creditors, explore nonprofit credit counseling services, or use legitimate tools like secured credit cards and credit builder loans to improve your score over time.
Mr. Lister is Here to Help
If you’re planning to buy a home soon, monitoring your credit score should be at the top of your to-do list. Lenders use it to determine not only if you qualify for a mortgage but also what kind of loan terms you’ll receive. Improving and maintaining a healthy credit score doesn’t happen overnight, but with careful management and time, it can open the door to better financial opportunities—including your dream home.
Need more tips on preparing for homeownership? Stay up to date with the latest advice from Mr. Lister Realty—your trusted resource for smarter real estate solutions.