Credit Scoring to Change!

CoreLogic and Fair Isaac Corp known as FICO, recently announced a collaboration that will result in a separate score that will be available to mortgage lenders and incorporates information that will include payday loans, evictions and child support payments.  In the future, information on the status of utility, rent and cell phone payments may also be included. 

Separately, last month, the Experian, Equifax and TransUnion, began providing estimates of consumer income as a credit report option.  And, earlier this year, Experian began including data on on-time rental payments in its reporting. 

This new information could either help some potential homeowner’s to obtain a loan or could be detrimental to those who are on the board of qualifying for a loan. 

The CoreLogic – FICO partnership won’t result in a credit score that will rule out a borrower for a mortgage backed by Fannie Mae, Freddie Mac or the FHA, which together own or guarantee at least 90 percent of the mortgages being written.    That’s because the Experian, Equifax and TransUnion “tri-merge” report required for such a loan does not rely on CoreLogic data.  But it could mean either more or fewer mortgage fees or a higher or lower interest rate charged by lenders that in today’s cautionary lending environment have heartily adopted risk-based pricing.

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How does a Foreclosure, Deed-In-Lieu of Foreclosure & Short Sale Seller’s Credit Affected?

Fair Isaac released a report that says credit scores are affected about the same, whether a seller does a short sale or foreclosure. Fair Isaac says the average points lost on a FICO score are as follows:

  • 30 days late: 40 to 110 points
  • 90 days late: 70 to 135 points
  • Foreclosure, short sale or deed-in-lieu: 85 to 160
  • Bankruptcy: 130 to 240

Foreclosure or Deed-in-Lieu of Foreclosure
Both of these solutions affect credit the same, says David Steep of Vitek Mortgage. Sellers will take a hit of 200 to 300 points, depending on overall condition of credit. This means if a seller’s FICO score before foreclosure was 680, it could dip as low as 380.

Short Sale
Steep maintains that the effect of a short sale (providing the sellers are more than 59 days late) on a seller’s credit report is identical to that of a foreclosure. The ding on credit will show up as a pre-foreclosure in redemption status, Steep says, which will result in a loss of 200 to 300 points. This means a short sale seller with a previous FICO of 720 could see it fall from 520 to 420.   If your loan stays current during a short sale, your credit will not be effected as much as not making your payments and your chances of purchasing another home sooner than two years is possible.

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What your FICO Credit Report Score Consists of

It seems today that everything revolves around your FICO score (i.e.  Insurance, Auto Loans, Mortgages, Employment).

Your FICO Score consists of five different categories:

 35% – Payment History
30% – Amounts Owed
15% – Length of Credit History
                                                          10% – New Credit
                                                          10% – Types of Credit

Payment History
– This is the most important category, it gives the overall picture of how well a person handled loans, credit cards and other types of accounts in the past.  Are the payments made on time versus payments that are delinquent.  Time does play an important factor.  If you have a history of past due amounts, the amount of time should play an important role in how a FICO score will be affected in addition to the number of occurrences.  On the other hand, good payments on your past accounts and the number of accounts that were paid on time will be reflected positively on a person’s credit score.

Amounts Owed –
This portion consists of how much you owe, or have a balance on, what types of accounts the amounts owed are a part of as well as the capacity of unused credit a person currently has available to them.  Each type of account is weighted according to the type of loan per se a retail store account versus a mortgage.  This is all taken into consideration when calculating your score.  The amounts owed on card balances and other accounts or loans are totaled and expressed a s a ratio of what you currently owe versus what your currently have avaialbe to you.

Length of Credit History – This portion looks at the length of your overall credit history.  It is calculated by gathering up data on all previous and current accounts and analyzing how long you have had the accounts as well as the time of your most recent activity on the accounts.  Also taken into consideration is the types of accounts that you have been using or have not been making payments on, such as mortgage versus payments on new purchases on your credit card.

New Credit – This section reviews the number of new credit inquiries or new credit that has been obtained and/or applied for, such as new credit cards, car loans, mortgages, etc., as well as any repaired credit or re-established credit for those who have made an improvement on their credit score after their credit score had dropped due to past delinquent account activity. 

Types of Credit – The types of credit has a lot to do with how much of an influence it will have on the actual credit score.  Credit cards or other revolving debt, installment loans, consumer financing and mortgages are all considered when observing the types of credit a borrower has established and/or is currently making payments on.

 Even with the breakdown of categories and the percentages each category bears on your FICO score, it is nearly impossible to figure out on your own.  You can obtain a free credit report online and for an additional fee, you can obtain your FICO score at several sites.

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