This is important information for home buyers, so read it and share it with your clients.
It could be a good tool for a young person just starting to build a credit profile, but it spells trouble for anyone eager to purchase a home in the near future.
Experian Boost - Don't Do It!
You've perhaps seen Experian's latest marketing pitch on TV commercials for their "Boost" product - "Help Raise America's Credit Scores", the website hero image reads. And yes, the product can do what it says - boost a user's credit scores. That's great news, right!?!? Well, no.
All that glitters is not gold, and Experian Boost is a perfect example. While yes, scores may go up, the product could also cause delays in the mortgage process, and disappointment for borrowers who find that their boosted scores aren't worth anything when it comes to getting a loan.
Here's how it works: A consumer signs up for Boost, and self-reports their own utility or other non-traditional tradelines to Experian. The consumer's bank account is linked to Experian, so Experian sees payments being made to the utilities, reports them on their reports using FICO model 8, and BOOM - scores are up! BUT, and a big ole' but, is that the report notates the account is self-reported:
Therein lies the problem. When a mortgage lender sees these self-reported tradelines, they'll require a borrower to remove them from their credit report - causing delay, and uncertainty over their credit scores, rates, and mortgage insurance costs. As of now, Fannie Mae, Freddie Mac, and HUD will all require a borrower to "correct" their report before they'll approve their loan - that means conventional, FHA, VA, and USDA financing is off the table for any borrower using Experian Boost.
For those looking to get a home loan, it's important to know this information in advance. One of the first questions a lender will ask is "do you know your credit score?". A lender that doesn't know any better may overlook the self-reporting and set a borrower (and their real estate agent) up for failure. Without an accurate credit report, a preappoval is worthless. An approval through DU or any other automated system isn't accurate, and uncertainty prevails for anyone using Experian Boost.
Why would they create this product, then? Well, although it's a hinderance to mortgage financing, it could benefit someone trying to build their credit from scratch. If a consumer has a "thin" credit file, they may not have any score at all reporting. Again, even if a score IS generated, it'll be useless for getting a mortgage, but it COULD help get other credit, open cards and other accounts that could eventually lead to a healthy credit profile, or offer other benefits. So the program isn't all bad - it's just important to note that if you're going to be buying a home, using Experian Boost could cause delays and disappointment - and you won't see that in the program's advertising.
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