New FICO Rules Will Make It Easier For Many Obtain a Mortgage

Oh the FICO Scrore, a big piece of the mortgage approval process. FICO scores as much as people may not like them are very accurate in helping a lender determine default risk on mortgage loans. But like anything there is alway room for improvement! After many years the good folks that run FICO are making some welcome changes to their system. These changes will help many borrowers obtain a mortgage and/or obtain a more favorable mortgage rate.

Until now if you had a collection account that had been outstanding for some time and you were able to finally pay off the creditor it actually hurt your FICO score to do so. That’s because you took an older and less important “aged” account and even though you paid it in full you brought it back to a “recent” acount status and your FICO scores would drop.

That is not fair to the borrower to be penalized for paying off a “bad” debt. In addition, since many knew it would hurt them even if they had the money and wanted to pay off their old debt they would not becasue their FICO scores would drop.

Finally, that is all about to change, which will benefit both the borrower and the creditor.

Here is a great article from out friends at “Mortgage Originator News” that explains the change:

In a move industry pros say will expand access to home ownership, FICO announced today that it is revamping the way it calculates credit scores.

Under the new system, FICO will ignore paid collection accounts and place less emphasis on medical bills when calculating scores. Those consumers whose only major black marks are unpaid medical bills could see their credit scores raise by as much as 25 points, according to the company.

The decision was hailed by National Association of Realtors President Steve Brown, who said it will increase consumer access to home ownership.

“Realtors welcome today’s announcement from Fair Isaac Corp., or FICO, that it will no longer penalize borrowers for certain debt-collection activities when calculating credit scores,” Brown said. “This move will ultimately make a real difference in the lives of millions of Americans, who have been shut out of the housing market or forced to pay higher mortgage interest rates because of flawed credit scores. Since the housing crash, overly restrictive lending has been the greatest obstacle to homeownership. NAR will continue to support efforts to broaden access to credit for qualified homebuyers.”

The new FICO scores will be available to lenders in the fall, according to the company.


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