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 to Improve your Credit Score before Searching for a Home

If you are thinking about purchasing a home, it is best to look at your credit report at least SIX months prior to purchasing a home.  It is a good idea to give your credit score a check-up and then take positive stps to improve your credit score if you find problems.  Make sure you check all three of the national credit reporting agencies: Experian, Trans-Union and EquiFax.

Review your credit carefully for items that may be reported incorrectly.  If you believe something is in error, you have the right to contest it.  You will need to contact the credit reporting agency and explain why you believe the item is inaccurate.    Alternatively, you can engage a credit report repair services firm to fix your credit report.

If there are derogatory items on your credit report that are accurate but which could cause problems in your loan application, you cannot have them removed; however, you can take steps to counteract them.  If you have missed payments in the past, take steps now to get your bills current.  Even if it means using the funds that you might be planning to use for a down payment.  It is extremely important that you get your accounts current and keep them current.  There is nothing which can lower your credit score more quickly than late payments.  Over time, this can make a significant difference in your scores.

Also keep in mind that removing all of your credit balances is really not the solution.  In fact, credit can be your friend when you are looking to purchase a home.  Make sure your credit is POSITIVE, not NEGATIVE.  Toward that end, avoid closing out your accounts.  Instead, make an effort to pay down your balances and keep them paid down below the minimum or completely paid off, but DO NOT CLOSE THE ACCOUNT. 

After reviewing your credit report and you see that most, if not all of the credit cards are nearly maxed out, it is time to sit down and plan an agressive strategy for paying some of them down.  One of the critical factors that often determine your ability to be approved for a mortgage is your debt to income ration.  In addition, high credit card balances can drag down your credit score.  Therefore, it is important to look at paying off some of your balances.

By following these steps, you can improve your credit score and improve your chances of being approved for your home loan

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