We’ve all heard of a FICO Score. We all know its importance when trying to get any type of new line of credit. But what about our FICO Mortgage Score? What is exactly is that, and how does it affect us?
Well let’s take a minute and dive in.
What is A FICO Mortgage Score?
With the changes we’ve seen in our economy, it has become increasingly difficult to obtain a mortgage. Banks have become more restrictive than ever when approving potential homeowners for a new mortgage. A decent down payment and history of a steady income used to be enough to get a mortgage. That is no longer the case.
The Fair Isaac Corporation (FICO) wanted a way to provide better guidelines for mortgages. Mortgages differ from other types of loans. So, they figured they should have their own scoring perimeters. That lead them to create the FICO Mortgage Score.
How Does it Differ From A Normal FICO Score?
A FICO Mortgage Score is very similar to a normal FICO Score. Just like a FICO Score affects your ability to get a new line of credit, a FICO Mortgage Score affects your ability to get a mortgage. Just like a FICO Score is meant to measure the creditworthiness of a potential borrower, the FICO Mortgage Score is meant to help measure the “mortgage-worthiness” of a potential mortgage borrower.
But there are some differences. According to Lexington Law,
“The keyword for the new Mortgage Score is “targeted.” According to FICO, the new mortgage scoring model is 7.5 percent more predictive than the regular FICO score when it comes to home financing. The reason? They now incorporate metrics and risk identifiers that are not measured in a traditional score. Factors such as rent payments, public records, and utility bills are included to assess creditworthiness and gauge risk.”
How Will These Changes Affect Me?
With this new scoring model, borrowers are concerned with how this will affect them, their ability to get a mortgage, and their interest rates. Well, for most people, concern is the opposite emotion you should be feeling with these new changes. It has actually had a great impact on most borrowers. When Time Magazine polled consumers, 70% of them said they saw an increase in their credit score. That is great news!
Of course these stats don’t necessarily mean that your score will go up. It doesn’t change much, just the fact that now they are able to be more precise and look at more factors when considering you for a loan. Really it means the same thing as with your normal FICO Score: if you have good payment history, you will be rewarded, and if you have poor payment history it will be difficult for you to get new lines of credit (or you will receive higher rates).
Are These Changes A Good Or Bad Thing?
Again, that really depends on what type of history you have. The possible negative impact? If you have a bad history with your payments, it could make it a bit more difficult to receive a mortgage loan. But I see these changes affecting more people for the good than the contrary. If you have a good history of making your rent and utilities payments on time, that could help you see an increase in your Score… which could mean great benefits to you when you’re trying to obtain a mortgage.
This article was written by guest author Nicole. She enjoys helping people understand the ins and outs of credit scores.
Daily Properties Managing Editor