Have major medical debts kept you from securing a mortgage? Have you found the terms of loans you’re able to qualify for too expensive? All of that might change soon due to an upgrade to the FICO credit scoring system. The new score is called FICO 9, and it aims to provide assistance to millions of Americans who have found themselves hit by major medical debt and cross-agency reporting problems. Here are the highlights about the FICO 9 score:
A more refined look at debt collection
With FICO 9, your credit score will be calculated considering medical versus non-medical collection agencies. Debts in collection due to medical bills will be treated differently than non-medical debt in collection. According to FICO, because of this change “the median FICO Score for consumers whose only major derogatory references are unpaid medical debts is expected to increase by 25 points.”
Better scoring consistency
Errors in debt reporting and credit scoring across agencies have shut some buyers out of securing a mortgage. With FICO 9, the company is promising the highest degree of consistency in scoring.
How FICO 9 may impact your mortgage rate
Keith Gumbinger, vice president of HSH.com had this to say in a recent Market Trends newsletter: “A borrower today with a FICO score in the 660 to 679 range and a 10 percent down payment would have to pay a fee of 2.25 percent to get access to today’s best mortgage rates (about 4.125 percent for a conforming 30-year fixed-rate mortgage give or take a little). Since that fee might be hard to pay out of pocket, many borrowers decide to incorporate that fee into the interest rate, which would then climb to perhaps 4.625 percent without the fee. But if the borrower had a credit score of 680 to 699, and that same borrower would see a fee of only 1.25 percent and a corresponding fee-included rate of 4.375 percent or so.”
Not all lenders will use FICO 9
One thing to be aware of when applying for a loan is the possibility that certain institutions may not be using FICO 9 yet. For those lenders who use earlier versions of the FICO score or other types of credit scores, you may not benefit from the changes to FICO’s scoring system.
Overall, this is good news for a lot of potential buyers. Hopefully the changes in scoring will open up the dream of homeownership to millions.
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