TransUnion recently released their National Consumer Survey revealing that as Americans enter into the peak time of the year to buy a home, three out of four of people are aware that their credit score is important, yet they are not sure about how it will affect them when purchasing a home.
The survey found that the majority of those who intend to or are considering buying a home in the next 12 to 18 months are not aware of actions that could enhance their credit and are unsure of how their credit directly affects the home financing process.
“As many people across the nation prepare to take advantage of still-low interest rates and look to buy a home, it’s essential they understand their credit score before applying for a mortgage,” said Ken Chaplin, SVP at TransUnion.
The survey was conducted online by Toluna Analytics between April 7 and April 13, 2015, and the data includes responses from 1,008 Americans, ages 18 to 64, who plan to purchase a home or are considering purchasing a home within 12-18 months, TransUnion reported.
While 74 percent potential home buyers believe it’s important to check the accuracy of their credit report, only 45 percent or fewer correctly understand that their credit score measures the amount of debt they hold, risk of not repaying back a loan, or the financial resources they have to pay back loans, the survey says.
However, despite the fact a majority of consumers acknowledged that they understood the importance of a credit score the survey found that approximately 33 percent of people assumed that increasing their income before applying for a mortgage would help improve their credit score. Another 28 percent believed that closing old accounts would also boost their credit score.
Of the 76 percent of “somewhat confident” prospective homebuyers surveyed, 38 percent were “very confident” that they understand the finance process and the terms of a home loan. Many were unable to identify the specific factors that a credit score affects in the home buying process, while only half of respondents correctly identified what a credit score affects. Fifty-two percent selected interest rates, 53 percent selected amount they can borrow, and 50 percent selected mortgage lending terms.
“Leading up to a home purchase is a particularly important time to check and understand your credit score, as it affects lending rates and mortgage terms,” said Chaplin. “At TransUnion, we recommend prospective home buyers begin regularly checking their score at least three months before securing a mortgage in order to maximize their potential for the best financing options.”
TransUnion's Tips for Preparing to Take out a Mortgage:
- Start with your credit report. Make sure it’s as accurate as possible, that your scores are where you want them to be, and that no one else has access to your credit.
- Do your homework. Research loans, rates and brokers before you sign anything. Doing this work now will pay off later with a better rate and terms.
- Be realistic on what you can afford. The larger your down payment, the wider your options. Putting more money down, up front, will help ensure you pay less each month.
- “Not now” doesn’t mean “never.” If home ownership isn’t a realistic option for you right now, that doesn’t mean it won’t be in the future. When it comes to a major purchase like a home, timing is critical.
Click here to view the complete TransUnion National Consumer Survey.