Changes to FICO Scoring Criteria Boosts Buyer’s Scores

Credit scores for millions of Americans are soon to increase due to 2 major changes in credit scoring.

Starting July 1, the 3 major credit agencies — Experian, Equifax TransUnion — are deleting the negative information from credit reports for tax liens & judgments. Liens & judgments are currently major derogatory events. As many as 12 million consumers will see their Fico scores increase in with typical scores increasing 20 points (often reducing a buyer’s rate by .125%).

The bad news: When buyers apply for a mortgage, loan officers won’t see these derogatory item(s) which only (then) “show up” after a title company searches public data bases via the “statement of information” (“SI”) form).

Only a handful of times buyers dutifully filled out a “SI Form”; which then often kills a deal or in the very least delays COE for months.

Related post: How Gov’t Liens Affect Buyers

The changes were made as a result of an out of court settlement reached with attorney generals from 30 states.

The court settlement was first launched by an aggressive legal campaign by consumer friendly New York Attorney General Eric Schneiderman

Schneiderman Announces Groundbreaking Consumer Protection Settlement with 3 National Credit Reporting Agencies

Related Post: Removing Collection Accounts from Your Credit Report

The “AGs” alleged liens & civil judgments were often attached to the wrong people, unfairly hurting their ability to access credit for a home, car or gym membership.

Beginning July1, if a lien or judgment does not match 3 of 4 criteria, the derogatory items will be removed from the borrower’s credit report.

The 4 criteria are:

1) Name
2) Address
3) Social security number
4) Birthdate

Courts, the IRS, and State Franchise Tax Board do not include either the date of birth or social security numbers in their public postings due to the risk of identity theft.

These changes come after Experian’s announcement last year, it has begun using wireless, cable bill, and other utilities payments payment histories, to determine credit scores; for individuals without a credit history.

Editor’s Note: These scores, often referred as “Vantage scores” are not calculated into mortgage credit reports and will not boost scores; but do hurt your homebuyers if payment is delinquent.

Bottom Line: It’s crucial your loan officer ask questions at length (in a professional manner) to determine if a buyer has had either of the fore mentioned items in their credit history.

This may come as a shock to many agents, but buyers typically avoid disclosing any negative credit information when obtaining a mortgage :).

As a backup plan; it’s crucial real estate agents and escrow officers push buyers to fill of the “SI” forms early the transaction.

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