What Happened To Credit Scores? HOME BUYER Episode 00029

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ficoAre you about to apply or in the process of applying for a home loan? You may want to consider paying off your credit card bill first.

Due to a recent change by major credit rating agencies, mortgage lenders can now look at whether you pay off your bill every month or keep a balance. That means home buyers who pay off their credit cards may earn an advantage when looking for a mortgage.

Before the change lenders looked at basic information like your total debt and whether you were on-time with your payments when deciding whether to make a home loan. But they didn’t know whether you were paying off your credit card or other revolving debts in full or carrying a balance month-to-month.

In September 2016, there was a change when two of the three major credit rating agencies, Equifax and Transunion, began using “trending data.”

By using  trending data lenders have access to a more comprehensive view of a borrower’s debt management habits, they will now know how much someone paid off each month on those accounts over the past two years. Lenders may reward those who regularly pay more than the minimum on revolving debts or pay them off in full.

Experian, is also expected to begin offering trending data soon. It is the first time in 30 years that the standard information provided to lenders on credit reports has been updated, according to Equifax.

Fannie Mae, was behind this change, the mortgage giant that guarantees many of the loans in the U.S. Fannie Mae found that all other things being equal, borrowers who paid off their credit card every month were 60 percent less likely to become delinquent than borrowers who make only the monthly minimum payment. Fannie Mae will now regularly review this information to help improve its risk assessment.

The final decision on who gets the loan still remains with the lender, who can decide whether or not they want to consider this factor.

Trending Data is still in early in adoption,  and Fannie Mae’s influence over the industry means they expect it to become part of the regular mortgage review process.

Fannie Mae, credit bureaus lenders say they intend to use the additional information to expand the number of loans available, not to penalize those who do carry a balance.

“It’s going to benefit someone who is on the border today,” said Mindy Armstrong at Fannie Mae.

Consider two individuals that have equal credit profiles: Jim and Joan. Jim makes the minimum payments each month, while Joan  pays her cards off in full. They both have been “maybes” in the loan officer’s mind, but this factor could tip Joan into the approved column.

Armstrong said “It’s just one factor of the risk assessment, these are all things you can do to put yourself in a better position.”

Your credit score and credit worthiness will be determined by many other factors – the most important, if you pay your bills on time and how much of your available credit you use. So paying down debts aggressively can have an added bonus of improving your utilization rate, and your credit score too.

The trending data is a new process that has been recently implemented and hopefully will help.

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Brought to you by: Lawrence F. Sanek who is a Florida licensed real estate broker and owner of Castle Dream Real Estate, LLC. He is also an engineer with experience in the structural and architectural disciplines. He has many years of experience in selling real estate and enjoys helping families relocate to Florida or to another area in Florida and to Capture The Dream. Visit the Castle Dream website at Castle Dream Real Estate, LLC or contact him direct at 1-888-51-DREAM (37326) or email him at Sanek

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