Custom Search
|
|
5 Credit Score Changes That Affect Mortgage Loans
Amount of Available Credit The ratio of account balance to the amount of credit available appears to have more influence on the credit score formula. The less available credit a mortgage borrower has on credit cards, the lower the score would be. More available credit would mean a better score. This change could have a broad impact on credit scores used to qualifying borrowers for mortgage loans, if credit card issuers implement more cuts on their maximum limits. A borrower’s credit score may drop if the available credit limit is reduced, whether an account has a balance or not. Number of Open Accounts It used to be that having too many open credit card accounts was viewed as a negative factor. However, it appears that has been reversed, provided that the accounts have not been delinquent or overused. Now, having more open and active accounts could have a positive effect on credit scores under the new scoring system. A potential negative aspect of this change is that more credit card issuers may close seldom used consumer accounts. From a mortgage loan perspective, underwriters will also have to change how they view borrower credit files. Isolated Credit Issues The new credit score model will apparently be more forgiving to mortgage loan borrowers who only have one major negative problem on their credit report. The scoring model calculates the severity and frequency of negative credit items. Depending on the item reported, isolated problems will have less impact on credit scores, as opposed to continuous and recurring late payments and delinquencies. Mortgage lenders and borrowers should welcome this change because of the potential upside of good borrowers not being lumped into a category of repeat offenders. Small Collection Accounts Collection accounts with an original amount of less than $100 are disregarded. Another positive benefit for borrowers with minor debts owed from parking tickets, unpaid library fines, small medical bills, or other disagreements. Infractions like these should no longer affect credit scores. Authorized User Credit The previous FICO credit score model allowed for authorized users on credit card accounts to build a positive credit profile without being the primary card holder. While some authorized user data is allowed, the new formula has reduced the ability to build credit based on this method. Article Directory: http://www.articledashboard.com Written by Rick Smith: Rates and information on mortgage loans, additional information from direct mortgage lenders |
|