The recent announcement from Fair Isaac Corporation (FICO), on August 7, 2014, is drawing lots of attention from both home-buyers
and Realtors. If the deal struck between the Consumer Financial Protection Bureau and Fair Isaac (the company that generates FICO numbers used by mortgage companies to determine an applicant’s credit worthiness) goes forward as planned it will change how they calculate FICO scores.
Your ability to purchase your next home could well come down to your credit score. Your qualification for a mortgage, put simply, is dependent upon your Debt-to-Income ratio, Employment Status, and FICO score (ranging from 300 to 850), the higher your score the better rates and programs you have access to, and if they are too low you may not be eligible for the mortgage you want or in some cases any mortgage at all.
The new FICO 9 model could usher in these and other changes to how your score is calculated.
- Previously unpaid debt that was subsequently settled through collections will no longer hurt FICO scores.
- Debt related to medical problems will have less impact on FICO scores. If the only unsettled debt someone has is connected to a medical problem, they could experience double digit increases in FICO scores.
- Fair Isaac will evaluate people with little credit history using a new algorithm that will improve their FICO scores.
- Any overdue payment notices will be removed if the debt has been settled, thus improving the FICO scores.
If this new model is adopted it could open opportunities for home ownership to a large number of buyers who had previously been left no alternative to renting.
In order for consumers to see these or any other benefits associated with FICO 9 lenders have to adopt the new scoring techniques. Bear in mind that FICO’s last model release in 2008, FICO 8, has, according to FICO, been adopted by only about half of its customers (lenders). So it is in the interest of every mortgage applicant to ask their lender which FICO model they are using to ensure that they are being given access to the best rates and programs available.
We have owned & operated Williams Realty since 2004 and selling real estate since 1987. The reason we started our own brokerage was so that we would have the flexibility to put money back into the pockets of our clients.
When you think of Northern Virginia Real Estate experts, think of Spike & Julie Williams and Williams Realty.