Homebuyers are still having difficulty obtaining mortgages as strict lending requirements remain in place. To try to provide greater transparency for lenders, FICO recently released a new mortgage credit score that better captures consumer buying behavior. How will this impact new homebuyers?
The new mortgage credit score
The score will include information that the credit reporting agencies haven’t incorporated into a borrower’s profile in the past. For instance, the score will capture late child support payments, paydown loan application requests, late rent payments, divorce settlements, among other non-traditional data metrics. On the other hand, consumers that pay their second mortgage or rent on time will have a stronger credit profile. The key takeaway is that the additional metric will not necessarily replace current mortgage screening processes, but enhance it with the objective of improving transparency.
Will prospective homebuyers be impacted?
It depends. Those families that have had difficulty over the past few years with meeting rent obligations or child support payments, will undoubtedly be negatively impacted. This applies to everyone: whenever more data is being reviewed, there’s a greater risk that the data may be inaccurate. Consumers will need to review there credit reports in greater detail to identify potential damaging mistakes. Others that have met their obligations will be able to benefit from the additional data to support their case for a mortgage with more favorable terms than in the past.
What can I expect in the future when applying for a mortgage?
This latest action is an indication that lenders will be analyzing more and more consumer buying behavior than in the past. Financial transactions that weren’t reviewed in the past, will likely be an area that lenders review in the future so be prepared.
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