New Credit Score Rules: Do You Qualify For a Mortgage?
(WatchDogReport.org) – There is nothing more stressful than not being approved for a mortgage, especially one whose payments will cost less than your current rent. The FICO score’s strict financial and credit guidelines make it difficult to get a loan if your credit is less than perfect, even if you have proof that you’ve paid your bills regularly. This seems ridiculous, especially when you are currently paying more than the cost of your mortgage payments. If your credit score is low, you may be refused a loan.
This problem has plagued home buyers for years, making it difficult for individuals and families to buy homes. This creates home ownership problems for people who can afford it but can’t get approved because their credit scores hurt.
Fortunately, things are changing now, and the rent you pay should improve your credit score, allowing you to adapt to your needs. For many people with a bad credit history or bad credit scores, the rent payments are high and paid regularly.
What Is a FICO Score?
The FICO score is “Fair Isaac Corporation.” These companies create credit scores based on information they can get from credit reporting agencies. While there are other models for calculating credit, FICO is the most popular, and many lenders (and homeowners) use the FICO score as a reference. A good FICO score is essential for low-interest credit cards, loans, and more.
FICO scores come from three standard credit bureaus: TransUnion, Equifax, and Experian.
Remember, using a site like Credit Karma to check your score can be beneficial, but not using your score on just one of these sites can delay what your lender sees.
What Changes Can You Expect?
Your FICO score will change quickly because your FICO score will soon be combined with your VantageScore when considering a loan. This requirement applies to mortgage lenders. This is important because VantageScore provides information about the applicant’s credit, utilities, and interest rates. Additionally, the VantageScore considers your rent on your credit report: This is an essential first step in ensuring that your credit score reflects your actual payments and affects approximately 10.7 million households in the United States.
Who Will Benefit Most from New FICO Changes?
Black American households are expected to benefit the most from the new FICO standards. However, it will also help people who pay their rent and utilities on time but have no other type of credit. VantageScore benefits people who meet these criteria by including both of these factors in the calculation.
Although the Federal Housing Finance Agency (FHFA) made the announcement in October, the actual change and implementation is a “year-long effort.” These plans mean they won’t hurt you right away, but if you’re planning to buy in the next few years, they could reduce or eliminate the financial risks you’re currently facing because of how your FICO score is calculated.
If you want to know how you are doing financially, check out the following sites:
Federal Housing Financial Agency (FHFA): government organization responsible for this change; also a good source of information on the housing market
Credit Karma: a free website that allows you to monitor your scores (note: this site is advertising based, so they may try to sell you credit cards you may or may not need or want).
VantageScore: the new type of report that will be included in FICO.
Keep these and other changes in mind before trying to get approved for a loan or other type of financial assistance, and always know where your credit score stands before entering into any financial discussion. Doing so can save you time and money overall.
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