06.04.15 by Jeff Johnson
A recent survey from credit bureau TransUnion reveals that a majority of people know a credit score is important, yet are unsure how it impacts home financing. They are unsure about actions that could help improve their credit score, and also unsure about what their credit score directly affects in the home financing process.
The national consumer survey found that while nearly three out of four (74%) potential home buyers believe it’s important to check the accuracy of their credit report, only 45 percent correctly understand that their credit score measures the amount of debt they hold, risk of not repaying back a loan, and the financial resources they have to pay back loans.
Despite the fact a majority of consumers recognized the importance of a credit score, one in three incorrectly thought increasing their income or closing old accounts before applying for a mortgage has the potential to help improve their credit score. Only half of respondents correctly identified what a credit score affects in the home buying process, including interest rate, the amount they can borrow, and their mortgage lending terms.
According to the survey, just 22 percent of people correctly identified that they should check their credit score during the three months leading up to a mortgage application. In contrast, nearly one-third of people surveyed believed one month before purchasing a home was a good time frame to check credit scores; however, a one-month time-frame gives consumers little time to take action if they discover fraudulent activity like identity theft or old, unpaid credit card debt that could negatively affect their score.
TransUnion shares the following tips for those 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 had access to your credit. You are entitled by federal law to a free copy of your credit report every 12 months from each credit reporting company: AnnualCreditReport.com
- 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.
Source: TransUnion Newsroom