Of all the various age groups in the country – from the Baby Boomers and their predecessors to “Gen Z” up-and-comers – it turns out that “Generation X” has the most insight as to how credit scores impact one’s ability to qualify for a home loan.
Zillow recently conducted a quiz to see who knew what about credit scores and their impact on purchasing power. And while there was no “passing” score, Generation X (those ages 42 to 56) were most likely to get a significant number of the questions correct.
A total of 47 percent of those in that age group passed the test – oops, we just said there was no passing score, didn’t we? – compared to 41 percent for Baby Boomers and older (ages 57 and up), 35 percent for Millennials (ages 27 to 41) and 25 percent for Generation Z (ages 18 to 26).
Quiz-takers were most likely (67%) to correctly answer that investments in the stock market do not typically affect their credit scores. Less than half (47%) correctly answered that credit scores can affect your mortgage until the day you close, and just 41 percent knew that you should wait at least six months after taking out a car loan before applying for a mortgage.
(The survey was conducted by Zillow in early February of more than 2,000 Americans.)
Credit scores have a real-world impact that all prospective purchasers should keep in mind.
“Lenders rely on credit scores as a key element of a borrower’s overall financial profile. Understanding your credit score and what affects it will make your mortgage process go much smoother,” said Jonathan Lee, Zillow Home Loans’ senior director for mortgage sales.
“Once pre-approved by your lender, it’s important to avoid new credit inquiries and taking on new debts prior to your loan closing,” Lee said. “Any changes to your credit score can lead to delays and in some cases even disqualify you for your home loan. That plush new sectional may have to wait until after you close.”
A higher credit score is likely to lead to lower interest rates, which can save thousands of dollars over the life of a loan and hundreds of dollars a month in some markets. The lower the credit score, the less favorable the terms, if the loan is approved at all.
Zillow research found a borrower with a “fair” credit score could pay 7 percent more over the life of a 30-year mortgage for the same home as an otherwise identical borrower with an “excellent” score.
As shoppers begin their buying journey, they would be wise to check their credit score, and take steps to improve their credit if they can. That includes always making at least minimum payments, reducing balances, keeping an old account or two, and checking credit reports for any mistakes.
It looks like the public has been paying attention. Credit scores of homebuyers – including those purchasing their first homes – have risen dramatically over the past 15 years.
A recent report from the NY Fed’s Center for Microeconomic Data shows that median credit scores for mortgages of first-time home buyers ended 2020 at around 740. By comparison, credit scores hovered between 680 and 700 from 2002-07, when a huge number of purchasers of potentially shaky credit got into the homes market. What followed with a major recession.