It’s important to remember that media clickbait can sometimes be misleading, and we shouldn’t always take them at face value. A recent example of this is the headlines surrounding changing fees on mortgages. While some media outlets may have sensationalized the story by using alarmist headlines, the truth is that mortgage fees do change from time to time, and it’s important to understand the details of these changes before making any decisions. Check out what the new FICO scoring system means for homebuyers.
What the new FICO scoring system means for homebuyers
Recently, FICO, one of the largest credit scoring companies in the world, announced that it will be rolling out a new credit scoring system in 2023. This new system, called FICO 10 T, aims to provide a more accurate picture of a consumer’s creditworthiness by taking a more holistic approach to credit scoring.
So, how will the new FICO scoring system affect home buyers? Let’s take a closer look.
What is FICO 10 T?
FICO 10 T is the latest version of FICO’s credit scoring system. It will use the same 300-850 point scale as previous versions of FICO, but it will take a more nuanced approach to credit scoring.
FICO 10 T will look at trends in a consumer’s credit behavior over time, rather than just their current credit utilization and payment history. This means that if a consumer has a history of responsible credit behavior, but experiences a setback like a missed payment or a high credit utilization rate, their score may not be as negatively impacted as it would have been under previous FICO scoring systems.
Additionally, FICO 10 T will differentiate between consumers who have revolving credit (like credit cards) and those who have installment loans (like mortgages or car loans). This is designed to recognize that consumers who have successfully managed installment loans may be better credit risks than those who only have revolving credit.
How will FICO 10 T affect home buyers?
The new FICO 10 T scoring system could have several impacts on home buyers.
First, consumers who have a history of responsible credit behavior but have experienced a setback (like a missed payment or high credit utilization rate) may see less of a negative impact on their credit score under FICO 10 T than they would have under previous FICO scoring systems. This could make it easier for these consumers to qualify for a mortgage or secure a better interest rate.
Second, consumers who have successfully managed installment loans (like mortgages) may see a boost to their credit score under FICO 10 T. This could make it easier for these consumers to qualify for a mortgage or secure a better interest rate.
Third, lenders may be more willing to work with consumers who have less-than-perfect credit under FICO 10 T. This is because the new scoring system takes a more nuanced approach to credit scoring and recognizes that consumers who have had setbacks can still be good credit risks.
FICO scoring system and homebuyers
The new FICO 10 T scoring system could be good news for home buyers. Consumers who have a history of responsible credit behavior may see less of a negative impact on their credit score if they experience a setback, and those who have successfully managed installment loans may see a boost to their credit score. Additionally, lenders may be more willing to work with consumers who have less-than-perfect credit. However, it’s important to remember that credit scores are just one factor that lenders consider when evaluating a mortgage application, and other factors like income and debt-to-income ratio will also play a role in the lending decision.
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