New FICO Score Changes Can Help You Qualify for Mortgage Loan
FICO or Fair Isaac & Company is the dominant credit-scoring system in the US that determines a consumer’s eligibility to get a loan. FICO scores are used by lenders to assess a consumer’s worthiness to get credit and at what interest rate. Recently, the agency announces it is recalibrating its current criteria used as basis for tallying consumer credit scores. The changes came after discussions with lenders and the Consumer Financial Bureau. These are envisioned to help leagues of Americans, including those with past credit blemishes, to qualify for loans at lower interest rates.
The Obstacle to a Loan
This is great news if you’re considering investing in real estate College Station TX. In the past, consumers with low scores had difficultygetting loans or were charged with higher interest rates. A survey conducted by the Federal Reserve reveals that 29 percent of renters are unable to purchase a house because they are not qualified for a mortgage. Overly strict lending policies are the major obstacles to become a homeowner. Oftentimes, only the best borrowers are being approved because they have flawless credit reports.
The Changes that Spell a Difference
The FICO revised formula will be used to generate the credit grades that will reduce the negative effect of past credit delinquencies that are usually coming from overdue medical debts. An estimated 46 million Americans have outstanding medical bills reflected on their credit report unfairly penalizing them with low credit ratings.
With the changes to FICO, a consumer can obtain 25 points in credit score if the delinquency is a result of unpaid medical bill. FICO considers medical emergencies as minor infractions; in these cases, FICO looks at the payment pattern instead. Thus, borrowers with stellar credit standing can still qualify for a loan even the credit record is dented with unpaid medical debt.
The introduction of changes in credit scoring does not remove existing unpaid debts from a credit report. FICO’s revised criteria will only loosen up the excessively tight lending system that shuts millions of Americans out of the real estate market or slap them with higher mortgage interest rates due to restrictive credit scoring. Borrowers will now have a broader access to credit, thanks to the new FICO version.
Waiting for Changes to Take Effect
Undoubtedly, there will be big changes in the lives of borrowers who were previously denied their mortgage applications. Consumer lending is predicted to rise. It entails a year or more of waiting, however, before the FICO changes take into effect and the impact to be felt in the credit scores. Banks and other credit unions need at least 18 months to study and analyse the newly-introduced FICO criteria before adopting them into the system. The same period of time is required to set up new pricing strategies to offer loans at a lower price. Nevertheless, experts are positive that the new credit scoring is most likely to be received favorably and soon enough, borrowers are expected to enjoy the benefits.