A new type of credit score, designed especially for mortgages, was released in 2012 by the Fair Isaac Corporation (FICO) in collaboration with data firm CoreLogic. This new type of credit score will serve as another tool that, together with the traditional FICO score, will help more people become eligible for a mortgage loan.
The FICO Mortgage Score Powered by CoreLogic will contain information that other credit bureaus, such as Equifax, Experian and TransUnion, don’t include in their credit reports. This should paint a complete picture of whether you are financially responsible or a risk for default. Information on your rent payments or child support payments will be included in this new credit report, and will be taken into consideration when determining your credit score.
Benefits of the Mortgage Credit Score
The developers of the new FICO Mortgage Score stated that its main purpose is to help more people become home owners, but critics say that it will only generate more inaccuracies and privacy problems. Some of the key benefits of this new credit scoring system are:
- The mortgage credit score will help prospective home owners who don’t have a long payment history record, which is a large part of the traditional credit score. If you don’t have enough experience with other loans, such as credit card or car loans, then this new type of scoring can work in your favor.
- Takes into account other on time payments. Nontraditional information, which wasn’t taken into consideration when determining your credit score in the traditional way, such as a payday loan that was repaid on time, can help you get a loan easier.
- Recent events in the real estate market have made it harder for lenders to evaluate borrowers, so the new credit score will also benefit them by more accurately predicting mortgage risk. It is estimated that the FICO Mortgage Score can predict mortgage risk 7.5 percent more accurately than the old FICO credit score.
Disadvantages of the Mortgage Credit Score
As you are well aware, the traditional FICO credit scoring system comes with its pros and cons, and so does the new FICO Mortgage Score. Here are a few of its disadvantages:
- Other issues will affect more heavily. Home buyers with problems, such as divorce, evictions, child support, or who bought a home before the economic crisis, will have a harder time getting a loan or rebuilding their credit, because the new credit score will accentuate their issues.
- Unknown time frame for dispute resolution. It is unknown if consumers will have the ability to dispute and resolve any inaccurate information in their new credit report in a timely manner.
- There is no guarantee that the new mortgage credit score will result in more loans being granted. Also, there are no guarantees that lenders will even use the new FICO Mortgage Score. Only smaller lenders have started using it, while big lenders are more concerned with sorting out loans with issues that they have already given out.
This new credit score may have benefits on paper, for now, but only time will tell if the new FICO Mortgage Credit Score will indeed help more people become home owners. The most important thing is for you to understand your financial situation, including your credit score, which can be the only thing standing between you and home ownership.