Big news: New way of credit score calculation
Guys, I have some big big big news!
The Federal Housing Finance Agency (the dudes that allow us to buy homes) has given the green light for Fannie Mae and Freddie Mac to use two new credit scoring models.
This is shocking! We haven’t seen something like this in forever.
So their goal is to improve accuracy by looking at the full payment histories of borrowers.
This means there’s going to be more transparency between you (the borrower) and the banks (creditors)
Unless you have reeeally dumb decisions this shouldn’t bother you, though.
But here’s the silver lining:
Lenders will also have to give credit reports from only two of the three agencies that keep track of people's credit.
This means you can theoretically select the most flattering one, in a sense.
Let’s dive deep.
Watch The Video Instead:
FICO VS. VantageScore; What’s The Difference?
The largest difference between FICO and VantageScore is the graduality of measurement.
FICO is the classic method that ranges from 580 - 800+.
(If you’re in the 800+ credit score club you’re killing it!)
VantageScore instead uses baskets to demark your ranking:
The VantageScore is built from the back of a FICO score.
So both FICO and VantageScore use the information in a person's credit report to generate a three-digit credit score.
Anything starting with a 5 is bad, 6 is decent, and 7 plus is a good tier.
This number, along with a lot of other things, helps lenders figure out how likely it is that you'll pay back any money you borrow.
So basically: The more points you get, the better!
To keep a good credit score with both scoring models, you'll need to do things like pay your bills on time and be picky about when you apply for new credit.
So… Does this affect your ability to buy homes?
This blog is all about buying properties and getting rich.
So the million-dollar (literally) question: what does this mean for homebuyers?
These new scoring models will help level the playing field for people who want to borrow money but have less than-perfect credit.
Borrowers who are black or Hispanic are more likely to have no credit or bad credit, and they are also more likely to rent.
Now there’s a little more liquidity for those applicants.
FHFA: "Today's decision is safe and sound and will help both borrowers and the Enterprises."
Getting a look at your new credit score
To reach your big financial goals, you need to know your credit score and how lenders look at it.
You can check your score in a few different ways, and you should make it a habit to do so often:
You can ask one of the big credit bureaus for your score
You can use Credit Karma or
You can use Credit Sesame
So long as you have a decent income, there should be no issue getting new loans.
The banks truly just want to see that you’re solvent enough to pay back without much issue.
Just spend time building your credit and you’ll be fine!