New FICO Model Could Help (or Hurt) Potential Buyers

By
Mortgage and Lending with Amerifirst Financial, Inc Equal Housing Oppurtinity Lender AZ BK0013635 NMLS 145368 LO:1015837

For years FICO scoring has been the main tool lenders have used to determine credit worthiness of potential customers.  But FICO is not only used in lending as insurers, utilities, and other services consider a consumer's FICO score when pricing or granting services.  Fair Isaac Company, the company behind the FICO model has been under pressure from the government to change its model to allow more consumers to access credit and they have been testing a new model for some time in partnership with 12 credit card issuers.

Under the old model things like payment history for utilities, rent and cellphones were not considered as part of your FICO score.  Under the new model they will.  Additionally, the number of times you move will also play a factor in your score.  This new model is expected to take effect on a national scale by the end of the year.

So what does this all mean?  The answer to that question is still somewhat unclear.  For those with an established credit history under the old model will a couple of late payments on a cellphone hurt? I know some people that know how credit scoring works will pay credit cards and other items that report on time and be late on electric, etc. if they have to knowing that it doesn't affect their credit. How about the college kid that moves each of the four years, will that now hurt his/her score?  How will cell phones and electric bills be considered in the debt to income ratios if at all?

The good news is that the new scoring model can potentially open up credit access to approximately 53 million consumers that are now "unscorable" due to lack of traditional credit history.  Potentially, it could especially help young buyers that have been reluctant to open credit cards and/or car loans and therefore have not built any type of payment history obtain financing. In my opinion a young adult that has not opened up credit cards or taken auto loans but has an unblemished rent and utility payment history is less of a lending risk than someone with a number of cards, etc. 

Either way, this change is coming and for many people it could be a good thing.  For those of us that are used to the traditional model we'll need to make adjustments.  And for those that pay all of their bills on time anyway this won't really affect you at all.

www.mtizzano.amerifirst.us

 

close

This entry hasn't been re-blogged:

Re-Blogged By Re-Blogged At
Topic:
ActiveRain Community
Groups:
Moving to Arizona
Family Ties
Arizona Premiere Living
Arizona Real Estate
Bananatude
Tags:
credit
fico
getting a loan
mortgage
new scoring

Post a Comment
Spam prevention
Spam prevention
Show All Comments
Rainer
126,264
Mike Tizzano
Amerifirst Financial, Inc Equal Housing Oppurtinity Lender AZ BK0013635 NMLS 145368 LO:1015837 - Mesa, AZ
Protect Your Transaction Certified Lender

Ron Aguilar Exactly true.  I wonder what motivation utilities, etc. will have for reporting to the bureaus.  I do hope that eventually "thin credit" will be less of an issue for those responsible enough not to have credit cards and car loans, and student loans which I feel are a bigger problem than any other credit type now.

Apr 08, 2015 12:53 AM #18
Rainer
288,671
Ron Aguilar
Continental Mortgage - Saint George, UT
Mortgage & Real Estate Advisor since 1995

Mike, I agree. As I attempt to Mortgage qualify a younger borrower it becomes common that they do not have any tradelines or maybe one. I usually get them started with secured credit providers but this can take 6 months or more to get 3 scores. Anyway it gives me a larger pipeline in the long run and it gives me time to build a relationship with these peeps. 

Apr 08, 2015 12:59 AM #19
Rainmaker
1,564,674
Marte Cliff
Marte Cliff Copywriting - Priest River, ID
Your real estate writer

I agree that living expenses and credit obligations are two different things, but both do show a person's attitude toward paying bills on time.

I remember a couple who did eventually get to buy a house - but they were frustrated and angry at being turned down at first for having no credit. They were in their 50's and had made it a point to stay out of debt. If they didn't have the cash, they didn't make the purchase. They felt they were being penalized for behaving responsibly. 

Apr 08, 2015 01:22 AM #20
Ambassador
2,567,304
Ed Silva
RE/MAX Professionals, CT 203-206-0754 - Waterbury, CT
Central CT Real Estate Broker Serving all equally

This could be a good thing for many that have little conventional credit history as they do not buy on credit.  If rental receipts must be presented when applying for credit with no history, utility receipts could be an assist for them as well.

Apr 08, 2015 01:49 AM #21
Rainmaker
1,557,374
Lyn Sims
RE/MAX Suburban - Schaumburg, IL
Schaumburg IL Real Estate

Carla:  You can put tenants late rent on their credit. I did a post about it years ago & have since had no deadbeats. I have put one on & they sicked an attorney on me that didn't have a leg to stand on - your late 30 days? What's the excuse for that?

I'm not sure that I agree entirely with your post. I think that it will be benefical because all the tickets & nonsense are no longer going to be counted.  I've read the law pretty throughly & I don't remember any mention of cell phones, etc. We had for a few years in my area where utilities did report & then they stopped.  So overall, everyone is going to get rescored.

Agree with Marte.

Apr 08, 2015 02:08 AM #22
Ambassador
678,850
John DL Arendsen
CREST BACKYARD HOMES, ON THE LEVEL GENERAL & FACTORY BUILT HOME CONTRACTOR, TAG REAL ESTATE SALES & INVESTMENTS - Leucadia, CA
Crest Backyard Homes "ADU" dealer & Contractor

I'll never forget the experience my Dad had when he was purchasing his first home. He had never borrowed money, had no debt, was working on the Apollo 1 (first man on the moon) and had a 12k DP for a 24k home. The first lender turned him down because he had no credit history. Fortunately he had the GI Bill which he didn't want to use because he thought it could only be used once. 

Apr 08, 2015 05:11 AM #23
Rainer
483,689
Kimo Jarrett
WikiWiki Realty - Huntington Beach, CA
Pro Lifestyle Solutions

It takes more than a good FICO score to get a loan, that's just one element. The big killer is the DTI and employment tenure.

I don't see any increased activity because of the FICO change. Matter of fact, according to all indications because of the stagnant economy, the millennials will still be tenants for some time to come.

Apr 08, 2015 05:12 AM #24
Rainmaker
196,948
Ben Yost - 303-587-4297
First Time Home Buyer, Mortgage Rates, Pre-Approval - Denver, CO
FHA, VA, Conventional - Mortgage Loans in De

Great Post! Thanks fo rthe updated information. More Buyers and seller the better for our industry- Nuff Said to the high moral Minders:-)

Apr 08, 2015 05:56 AM #25
Rainmaker
160,827
Ray Wright
Keller Williams Realty - Riverside, CA
SoCal Realtor - A.L.C.

This could be good or it could be a disaster as we loosen credit standards.  This may be the start of a trip down a slippery slide and we may find ourselves back where we  were in 2007.  We shall see.

Apr 08, 2015 06:15 AM #26
Rainer
126,264
Mike Tizzano
Amerifirst Financial, Inc Equal Housing Oppurtinity Lender AZ BK0013635 NMLS 145368 LO:1015837 - Mesa, AZ
Protect Your Transaction Certified Lender

The increased activity will come from the thin credit buyers, allegedly.  Millennials have made up the largest share of home buyers for two consecutive years.    There are numerous down payment assistance programs available for buyers if that is the issue. 

Apr 08, 2015 07:39 AM #27
Rainmaker
1,431,397
Gene Riemenschneider
Home Point Real Estate - Brentwood, CA
Turning Houses into Homes

Something to keep in mind.  There are tight months when I let the PG&E go a month.  I guess that is going to end.

Apr 08, 2015 11:19 AM #28
Rainmaker
1,062,937
Sharon Parisi
United Real Estate Dallas - Dallas, TX
Dallas Homes

Mike, thanks for the update.  I was unaware of these changes.

Apr 08, 2015 04:22 PM #29
Rainer
11,177
Suzi Keenan
Hulett & Associates Realty - Chesapeake, VA
Suzi Keenan

When I purchased my first car I didn't beleive in credit cards and they said I had no credit even though I could prove I paid all my bill ahead of time every month. They gave me the car loan at a 28% interest rate that I paid off two yrs early but I remember the frustration of being penalized for being what I thought was a very responsible consumer. By the time I purchased my first house I was very educated on how to build credit from that experience so, I have mixed emotions on this new FICA scoring its a mixed bag of worms. 

Apr 08, 2015 11:25 PM #30
Rainmaker
565,940
Eric Kodner
Madeline Island Realty - La Pointe, WI
CRS, Madeline Island Realty, LaPointe, WI 54850 -

The existing so-called "Fair Isaac" system allows for too many errors on the part of credit scoring agencies and those who report to them.

I went along with a buyer client to his bank a couple years ago and his banker was explaining to him the reason that his FICO score was low was that his vehicle had been seized and repossessed a couple years ago.  My client replied "That's impossible, I'm still driving that car".  He took the banker outside and showed him the VIN (Vehicle Identification Number) on a tab next to the windshield, which just happened to be the exact same number as the vehicle the credit agency reported as repossessed.

Apr 09, 2015 01:33 PM #31
Rainmaker
299,995
Jim Paulson
Progressive Realty (Boise Idaho) www.Progressive-Realty.info - Boise, ID
Owner,Broker

Hmm, time to get six credit cards and set them to autopay the other in an endless cycle to an 800 credit score.

Apr 10, 2015 01:12 AM #32
Rainer
126,264
Mike Tizzano
Amerifirst Financial, Inc Equal Housing Oppurtinity Lender AZ BK0013635 NMLS 145368 LO:1015837 - Mesa, AZ
Protect Your Transaction Certified Lender

Eric Kodner One of the items discussed in the articles I've read on this is that they are going to make the dispute process more streamlined and less complicated.  I'm not sure how they intend to do so or what that would look like but errors are definitely common.

Apr 10, 2015 03:23 AM #33
Rainmaker
304,200
Tammy Adams ~ Realtor / Podcaster
Maricopa Real Estate Co - Maricopa, AZ
A Maricopa Agent who Works, Lives & Loves Maricopa

I'm with the group that think this is a win for those who are trying to stay debt free. The current system encourages us to get into debt and that is a problem we have been dealing with the past years. Those with good credit today I would be bet most (maybe not all but most) pay all their bill responsibly which is just who they are. 

Apr 12, 2015 04:13 AM #34
Rainer
126,264
Mike Tizzano
Amerifirst Financial, Inc Equal Housing Oppurtinity Lender AZ BK0013635 NMLS 145368 LO:1015837 - Mesa, AZ
Protect Your Transaction Certified Lender

Tammy Adams ~ Realtor Maricopa, AZ  Dave Ramsey fans should be rejoicing. I hate having to tell young people to "establish" a credit history by taking out debt, especially those that are responsible enough not to go into debt.  Now if we can only get this student loan stuff under control. 

Apr 13, 2015 04:45 AM #35
Rainmaker
304,200
Tammy Adams ~ Realtor / Podcaster
Maricopa Real Estate Co - Maricopa, AZ
A Maricopa Agent who Works, Lives & Loves Maricopa

Mike Tizzano - Funny you say that, the first thing I thought of were the Dave Ramsey folks! lol

Apr 13, 2015 02:44 PM #36
Rainer
389,343
Anna Hatridge
Goodson Realty - Farmington, MO
Missouri Realtor with Goodson Realty

Hopefully the changes will help many buyers.  The real secret is that we all should pay our bills when they are due.  Don't be late. Live below your means and you will not have to worry about the due date.

Apr 27, 2015 12:19 PM #37
Post a Comment
Spam prevention
Show All Comments

What's the reason you're reporting this blog entry?

Are you sure you want to report this blog entry as spam?

Rainer
126,264

Mike Tizzano

Protect Your Transaction Certified Lender
Give buyers and agents assurance that their lender will perform
*
*
*
*
Spam prevention