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NEW CHANGES TO CREDIT SCORES WITH HOME MORTGAGES:
The FIRST, is by using “Alternative Data” to calculate a person’s credit score.
Under this NEW program, Banks would be allowed to take OTHER aspects of a person’s financial history into consideration, such as their average account balance over time, and whether or not they’ve ever over-drafted. In terms of the impact - VantageScore estimated that this would allow credit access to 72,000 more households every single year - opening the door for many more people to gain access to financing.
Second, the Government Housing Agencies, Fannie Mae and Freddie Mac - Have approved FICO 10t and Vantage Scores to be used for home financing.
As MarketWatch explains, “Both FICO 10T VantageScore will look at a broader range of payment history data for borrowers, from cell phone bills to utility and rental payments, to determine credit worthiness” - therefore, making them more inclusive.
And FINALLY, THIRD…these changes would “reduce costs and further promote innovation while not compromising accuracy and predictiveness of a borrower’s ability to repay,”
Or, in other words - these new credit scoring models are “predictive,” meaning - they aim to accurately determine how likely you are to re-pay a loan…and, from their own studies - if you’ve paid your rent on time, you’ve paid your utilities on time, and you’ve paid your phone on time…chances are, you’ll probably pay your mortgage on time…even if you don’t have a traditional credit score.
In terms of my own thoughts, when it comes to credit scores, overall, I’m a fan of anything that promotes more accuracy, and I tend to believe this is a move in the right direction. HOWEVER…there’s certainly the suspicion that banks are simply pushing for fewer restrictions so that they can issue and sell more loans, so I’ll leave that up to you to decide…but, in the big picture: I don’t expect this to have a major influence on the market, and - if anything - this will take some time for lenders to adjust to.
But, at least on the bright side, as one analyst says: “the Fed’s flushing inflation and dumping the punch bowl should lead to a new bull market for stocks, bonds and other risk assets…with a fresh start beginning in 2024, so don’t despair — that’s less than 15 months away.”
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