Study: Most Florida Mortgage Applicants Don’t Understand Credit Scores

New research shows that consumers have a poor grasp of the importance of credit scores and what goes into them.

This needless lack of knowledge that can cost thousands of dollars when it comes to obtaining a Florida home mortgage.

The study by Opinion Research Corp. and sponsored by Washington Mutual and the Consumer Federation of America surveyed a sample of 1,000 consumers.

• A stunning 74 percent said they believe that their income level influences their credit scores - despite the fact that credit bureaus have no access to personal income data, and do not record income.
• Less than half (47 percent) were aware that Experian, Equifax and Trans Union are credit bureaus.
• One third (33 percent) believed scores were tied, at least in part, to their education. Also false.
• Less than a third (29 percent) of respondents were aware of the meaning of credit scores - to predict the risk non-payment of Florida home loans.
• Less than a quarter (24 percent) knew that the lowest FICO score needed to qualify for a low-cost Florida mortgage generally is around 700.

Americans’ lack of correct information about scores and the credit report system is costly. If all consumers raised their FICO scores by just 30 points on average, “total consumer savings would exceed $20 billion” a year.

Potential impact on home buyers is especially severe. Using data compiled by Fair Isaac Co. from regular surveys of Florida mortgage lender groups, if an applicant seeking a $300,000, fixed-rate mortgage raised his or her credit score from 580-619 to 660-699, the applicant would save $5,148 in annual interest.

Raising the score from 620-639 on a 15-year Florida home equity loan of $50,000 would cut annual interest costs by $1,044.

The same pattern of savings go beyond mortgage rates.

They exist in other areas of consumer finance as well. For example, raising one’s score from 590-619 to 660-689 would cut payments on a 36-month $25,000 auto loan by $708 a year. Savings can also be achieved by raising scores in advance of applying for insurance or even cellphone service.

But experts believe the biggest savings are possible in Florida mortgage financing - and only when a consumer understands credit scores.

Be sure you do, and you won’t let savings slip through your fingers.