Last week, a new – and some say improved – method of determining FICO scores for mortgage applicants was announced. The goal was to find a way to incorporate “consumer behaviors” that could make it easier to buy a home. Now, though, there are some critics who insist inaccuracies and privacy concerns could complicate matters.
Data firm CoreLogic, along with FICO, announced last Tuesday the new score was designed specifically and exclusively for mortgage brokers and lenders. Aptly named “FICO Mortgage Score Powered by CoreLogic”, these scores will be calculated via CoreLogic’s algorithm “CoreScore Credit Report”.
While the other three bureaus – Experian, TransUnion and Equifax – will be included, there’s additional information that can’t be found in those older reporting methods. Delinquent child support payments, payday loans and even rental payments can be factored into these new scoring dynamics, which could make it easier to qualify for a mortgage – or not.
While this might not bode well for some applicants, there are other considerations that could at least weigh into the decision making process while opening the door for those who might not otherwise qualify. On time payments for second mortgages have an impact and for those who pay rent on time, it could serve as a way to measure an applicant’s ability to maintain payments over time.
It won’t replace or eliminate traditional credit scores, rather, it’s designed to be an additional tool that works with those tried and true methods of the past. Specifically, it can influence a lender’s early decisions before the more detailed – and time consuming – mortgage process gets underway.
Mark Munzenburger, who is the director of education at GreenPath Debt Solutions says consumers might be surprised at how easy it is to collect the kind of information used in this scoring method.
Consumers really need to be aware that, more than ever, everything they do with respect to their finances is somehow tracked and kept in a database.
Is this a fair shot, though? Some say it can work against lower income applicants and those who are already struggling in a tough economy. For example, anytime the economy suffers, marriages do too. Divorces often result in credit problems, including foreclosures, repossessions, tax liens and bankruptcies. These certainly show up on a credit report, but it remains to be seen how it ultimately affects the new methods and whether or not it will be flexible enough for a proper perspective.
There still might be questions surrounding unemployment claims and even insurance. For example, states have different guidelines on what’s required for mortgage insurance and even automobile insurance; the details aren’t clear on how – if at all – this new scoring will look after those considerations have been factored in. Further, many have questioned how accurate the information will be coming from a landlord who may hold a grudge or who will report late rental payments on tenants who are withholding rent until a repair is made.
Despite the concerns, there’s no denying these new scoring methods can be a huge advantage for young borrowers who haven’t had the opportunity to build a strong credit history. In the past, these applicants would have been declined or forced into paying a higher interest rate or coming up with a bigger downpayment. These nontraditional considerations now open the door for these younger applicants, and ideally, those who might have struggled in the past and who may only have on time rental payments to show their commitment.
In one study, 70% of would-be applicants scored higher with the new CoreLogic threshold.
- FTC Warns of Prepaid Card Scams – May 23, 2013