New FICO Credit Scoring System Offering Consumers Lower Mortgage Rates
A change that many consumers have been waiting for has arrived, FICO scores are changing, giving a boost in consumer credit scores. This change may result in lower mortgage rates as well, giving more borrowers a chance at homeownership.
What is FICO?
FICO, a credit scoring system established by Fair Isaac Corporation is often used to help determine a borrower’s credit score for mortgage loan approval. The system has now been updated to a newer version referred to as “Dubbed FICO Score 9” and with it is a different way of how credit scores are rated. This new change will help improve many consumer credit scores and may even boost their chances of loan approvals qualifying consumers for lower mortgage rates as well.
A borrower’s FICO score plays a crucial role in mortgage approval and while it is important to have a good credit score rating, sometimes there are financial challenges that can hurt our credit scores, including:
- Unpaid Medical Debts
- Unpaid Student Loans
- Utility Bills
- Credit Cards
The list can go on, the point is, our financial obligations can either help boost our credit or hurt us. Consumers with unpaid medical debt in particular are certainly going to benefit from these FICO changes.
Lower Mortgage Rates for Borrowers
The new and improved FICO credit scoring system, Dubbed FICO Score 9 will be paying less attention to unpaid medical bills that it once used to when ranking your credit score from a range of 350-850. Mortgage lenders are constantly using the current FICO Score System 8 to find out whether or not they should approve a borrower for a mortgage loan.
The three major credit bureaus that many lenders turn to are: Experian, Transunion, and Equifax. These Bureaus provide a look into a person’s credit summary to help give lenders a better perspective on a person’s level of financial responsibilities. These types of information are often pulled by credit card companies and lenders nationwide.
With the new changes made to FICO, we can expect for more borrowers to get approved not only for a loan, but for a lower rate offer.
How Big of a Boost in Consumer Credit Scores?
The reason for this change to overlook a persons unpaid medical debt is due to past issues with medical bills being falsely interpreted because of multple incorrect medical billing. Any derogatory items within a person’s credit history can hurt them by 100 points, if not even more. This number can make a huge difference not only for mortgage rates, but is highly effective on a person’s approval for credit cards and other types of loans as well.
With the new system in place, if it will be used, can boost a borrower’s credit score by as much as 25 points, for some consumers maybe even more. Though it may not sound like a lot of points, a consumer can be 25 points shy of being approved for a mortgage loan.
The improved changes of the system that will help many consumers today includes:
– Any medical debt that have fallen into collection but have been repaid will be overlooked and should not effect a borrower’s score.
– Medical debt overall will have less effect on a borrower’s FICO score.
– For consumers with little credit history, there is also a new strategy on how their credit will be analyzed.
As long as the newer version of FICO 8 is approved by lenders on how accurate it reads and predicts on a few test runs, it may be used nationwide within the lending industry. Before then, we can only cross our fingers and hope that this version of the program will be used at all.
