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New Credit Scoring System May Make it Easier to Qualify for Mortgages

Military homebuyers may soon have an easier time meeting lender credit requirements thanks to a new credit scoring model that incorporates things like rent history, tax lien information and the use of short-term lending products such as payday loans.

The new model is a joint effort from FICO, whose credit score dominates the mortgage lending industry, and CoreLogic, a consumer data firm that collects information from public records and its own unique sources. Rather than replace the traditional FICO score, this more wide-ranging breakdown can be used to supplement a loan applicant's financial picture. Both companies claim the additional data will help lenders avoid risk and open the doors of homeownership to more consumers.

"The new FICO Mortgage Score is designed especially for prequalification and origination and delivers increased insight when it matters most," Joanne Gaskin of FICO said in a news release. "For many lenders, the increased predictive lift will translate into thousands of new mortgages, and the avoidance of millions of dollars in bad loans and associated costs. This innovation is a win-win for lenders and consumers alike."

Mortgages and Lawn Mowing

Data points from CoreLogic's reporting represent a far-reaching look at a prospective borrower's financial life. There's both good and bad in this. Some of the information that may be available to lenders includes:

  • Property taxes and property values
  • Alimony judgments
  • Tax liens
  • Homeowner association dues
  • Evictions
  • Pay-day loans

Even things like utility bills and cell phone bills might wind up in the mix, depending on your providers. Bizarre as it sounds, failing to mow your lawn could wind up hurting your chances of securing a home loan, as explained in a recent U.S. News & World Report article:

"There are plenty of local governments that can cite you for not mowing your lawn, leaving your garbage out on the curb overnight or owning one too many dogs. These types of local penalties may seem ridiculous and unfair, but they do have teeth. Many localities have the ability to place a lien on your property if citations remain outstanding. That means that it could get noticed by the new FICO score. Failure to mow your lawn really could lead to a rejection on your mortgage application."

Moving forward, mortgage lenders will have access to all kinds of information about you they never had before. Consider it a double-edged sword. New data means new opportunities for inaccurate information about you to show up on a credit report. It also means prospective borrowers who've had problems with things like alimony and evictions may be in trouble.

But representatives from both FICO and CoreLogic are also confident that these changes will help boost credit profiles for many applicants, making it more likely they'll qualify for home financing.

Greater Access to Financing

A whopping 70 percent of applicants have a better credit profile when this new credit scoring model is used compared to the traditional FICO score, according to Tim Grace, senior vice president of product management at CoreLogic.

A FICO analysis claims the new model would double the number of consumer with credit scores of 800 to 850.

"For a top-20 lender processing 300,000 applications a year, adopting this new score could translate into 3,900 more loans approved every year," Grace said. "It not only provides a more complete and predictive evaluation of a consumer’s credit risk profile, but it can empower lenders to better mitigate risk and approve more loans for more consumers."

Right now about two dozen lenders are testing this new credit score model. Whether it takes root throughout the lending industry remains to be seen.