Experian Study on Home-buyers & Credit Scores

As a real estate/finance professional, it’s imperative to help your customer base and potential home buyers/applicants become aware of their credit and know the importance of having the best credit scores possible.

An Experian study highlights some insight into consumers and shows just how important this knowledge is.

According to this survey, 95% of home-buyers are aware that credit scores play a large role in purchasing a home, and those who “knew” their scores felt more prepared to buy but just because these potential buyers feel comfortable “knowing” their scores does not mean they should be comfortable.  How many of these potential buyers are looking at the “right” credit score?

There are so many credit scores to purchase online that vary from the scores used by mortgage bankers.  These many scores can range from as low as 280 to as high as 990.  Even the “FICO” scores which are used in mortgage banking have about 50 different score versions.  If a potential loan applicant is looking at a score that is 30 points higher than the FICO version used by mortgage lenders that 30-point difference could mean a rejection of a loan, higher pricing, or a smaller loan than needed.

Here is an example of this score confusion:

A buyer pulls his credit online and his scores are a 742.  He has read online that 740 plus is an excellent credit score, and he doesn’t analyze his report so he is happy and believes he is in a great credit situation. He and his wife are planning on purchasing a property within the next 12 months, and they hope to get an excellent mortgage rate with this score.

However, 8 months later when he meets with a mortgage professional to get a pre-approval letter he is shocked.  The banker pulls a FICO 4 version and the score is a 712.  The buyer is dismayed and learns the score he pulled was not a FICO score.  Now he is scrambling to figure out how to improve his credit and purchase a home in 3 plus months when his lease is up.

If the buyer was educated early on, he would have had 7 months to have a credit repair firm improve his scores and teach him how to manage his credit. He would have wound up with a 740 or maybe even a 780 plus.  Unfortunately, he was instead stuck with a 712, and can face a total rejection of his loan, or will end up paying a much higher cost over the term of the loan if he’s lucky enough to get approved.

Getting back to the study, 45% of future homeowners said they had to put off purchasing a home to work on their credit and qualify for better interest rates.

The survey also shows that many future consumers are uncertain about the buying process due to credit issues. 41% of consumers in the survey were concerned that their credit scores would not qualify them for the best rates possible. And of these concerned consumers, 27% did not even know what their score was.

Fortunately, the survey also showed that knowledge of credit eased this uncertainty. The survey shows that 70% of people who knew their scores felt significantly more prepared to buy a home versus only 54% for those who did not know their credit situation. Also, the amount of people who felt financially prepared to buy a home (60%) was almost equal to the amount of people who were confident about their credit (62%).

Another positive note from the survey is that many consumers are working to improve their credit.  58% of future homebuyers are taking steps to improve their score for the best home loan rates. This includes over 55% paying off debt and 54% paying their bills on time.  Many of these potential buyers may not know that hiring a reputable credit repair firm might put them into a score threshold that can save them hundreds of thousands over the term of their mortgage or position them to qualify for a larger mortgage for their dream home.

You can use this insight to your advantage by informing your clients as early as possible to check their credit reports and scores.  If they purchase their “FICO” scores they will view a variety of FICO scores including a version of the mortgage lending scores along with their full three bureau credit reports.  Once the purchase is made they can cancel the monitoring product if they do not want to continue it monthly. Feel free to refer your clients to us to review their credit scores and reports or give feedback on what we can do to help improve their scores.

Feel free to reach out to us if you have any credit questions or reports you would like reviewed!