By John Cabezas with LIV AZ Realty
In case you haven’t heard, the three reporting agencies (Transunion, Equifax, and Experian), are changing the way they calculate FICO scores.
I’ll bet you are wondering how these changes will affect purchasing or refinancing a home. Everyone who heard the news is wondering the same thing.
FICO’s recently announced credit scoring changes probably won’t make a difference, but one never knows. It is said that the two greatest mysteries in life are why cows always face north or south when grazing or standing, and how the credit bureaus calculate FICO Scores. The cow thing is really cool, I’ll bet you didn’t know that.
Let’s look at these changes in more detail…
The new FICO scoring is now called FICO 10. This updated scoring model, which will take effect this summer, is causing genuine concern. Many believe that scores will likely drop by 20 points or more for millions of Americans.
If you are one of those affected by this new scoring, accessing credit will become more difficult and more expensive.
I’ve spoken with Bob Wasieko, Branch Manager for VIP Mortgage, and here’s what you need to know:
The majority of mortgage lenders will not immediately adopt the new FICO 10 model. Many still use the older FICO score models.
Here is the bad news: Consumers who carry a lot of debt will likely be most affected by the new model. In the past, you could move your debt around or get a debt consolidation loan and find ways to manage your FICO score. Unfortunately for consumers, that won’t work anymore. Unless you pay them down, it will not change your score.
Experian, Transunion, and Equifax will now look at trends within your credit usage. The FICO 10T (one version of the new model), looks deeper into how individuals have managed their credit over the last 24 months. The three reporting agencies consider this to be very important; basically, they are looking to see how you manage your money, and if you are overextending yourself. By looking at these trends, they feel they can better judge your creditworthiness.
Of course, the basics of good credit will always remain the same. Here are the major points of importance in managing your score:
• Always pay your bills on time and pay more than the minimum.
• Avoid new credit and keep a mix of credit types in use (such as credit cards and auto loans). The mix of credit is one of the most important things you can do to manage your credit.
• Closing accounts can hurt your credit score as well. So, before closing an account, ask a professional lender or Realtor. If you are concerned or have questions, please reach out to me and I’ll either answer your question or point you to someone who can. I am always available for questions.
A Cuban born immigrant and businessman, John spent 25 years as an executive in corporate America, has co-written a real estate ‘How To’ book, is a three-time guest on Real Estate Matters (960AM) Talk Show and is currently a partner and Realtor at LIV AZ Realty. In his 20 years as a Realtor, John has been involved in major remodel and renovation projects throughout the valley. View his real estate blog at www.livazrealty.com