Credit Tip

Maxing out on just one of your credit cards can drop the score by 20 – 45 points, as claimed by FICO. This would hurt your chances a being a credible borrower in the eyes of a lender, and many banks might just refuse to give you a loan. Have your borrowers consider a balance transfer, or speak to a FICO pro about possible strategies for increasing their scores.

 

       The US is now facing some of the lowest homeownership rates in the past 50 years, and a big part of this problem has to do with the current credit score model. (Notice I didn’t use a plural when I used the word model?)  We all know that the Fico monopoly struggle is real.  And yet, the “fed” continues to maintain the status quo regarding credit scoring models. 

       FHFA which regulates Fannie Mae and Freddie Mac seems to be moving in the right direction.  They just concluded an “RFI” (request for input) event on mortgage credit scoring standards to determine whether to use an updated FICO model (FICO 9), the Vantage Score 3.0 model, or a combination of the two.  This change is long overdue and will take place in the next 12-24 months.  I don’t see a combination of the two, but rather banks will now be given options to choose which model works best for them.  I also think that the Vantage Score will become the “go-to” model over time.  Obviously, there will be some guidelines in place to avoid “score shopping”.  

      Now is the time to familiarize yourself with the VantageScore, as it has certainly appeared on many lender’s radars.  In fact, about 6 billion VantageScores were used by lenders last year!     

      Now is also the time to become as culturally diverse as you possibly can.  Consider learning a second language, hiring minorities, and joining groups and associations that cater to minorities.  Why?  Consider this forecast: The Harvard Joint Center for Housing Studies has forecast that approximately 75% of new household formations in the period 2015-2035 will be undertaken by minorities, who are often disadvantaged by current scoring models.

     Now is the time to position yourself so that you can actually benefit from these changes.  Industry leaders are often ahead of the curve when it comes to change.  They don’t wait for change; they are actively involved in shaping those changes.