Credit changes are coming!
This summer, Fair Isaac Corp.—the company behind FICO scores, is launching a new scoring model. It called is the FICO Score 10. This change is to effect 110 million Americans’ credit scores, and about 40 million consumers will see their scores drop around 20 points as a result. Other consumers will see a bump in their credit score.
Forbes reports that the new approach will weigh delinquencies—particularly those in the last two years—more heavily than past models, putting borrowers with late payments on their records at a disadvantage. Consumers with a history of high utilization ratios (the amount of credit you use vs. what you have available) will also see their scores drop.
The credit scoring changes can effect consumers in many different ways. It can change what credit cards or loans your qualified for and the interest rate.
As a Realtor®, one of the things that concern me with big credit changes like this are out of date prequalification letters.
When prequalifying for a home, the lender pulls a tri-merge credit report. This credit report is good for 120 days, but lenders want the credit report to be no more then 90 days old when a loan is first submitted.
Since the credit scoring changes are coming in the summer, on the tail end of the popular buying season (February though June), this could mean that those who started their home search in the spring may be due or over due for a new credit report.
With the FICO score changes this summer, someone who qualified early on before the change, may not qualify at the time of the purchase. A 20 point drop, can cause a dramatic change in the qualified rate or what lenders will accept the loan.
It’s horrible when Sellers take their homes off the market with a contract, only to find out 30 days later that the buyer does not qualify. Not only does it cause the Seller to hold on to the home much longer then they make like or need, it can also cause them to miss out on better offers. Overall, it causes undue stress.
Selling your home can already be a stressful experience. Being aware of dates on prequalification letters can hopefully help the right buyer to be choosen and contracts from falling due to updated credit scores.
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