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A new credit scoring system that considers nontraditional data like rent and alimony could make it easier for veterans to obtain home loans.
Military homebuyers may soon have an easier time meeting lender credit requirements thanks to a new credit scoring model that incorporates things like rent history, tax lien information and the use of short-term lending products such as payday loans.
The new model is a joint effort from FICO, whose credit score dominates the mortgage lending industry, and CoreLogic, a consumer data firm that collects information from public records and its own unique sources. Rather than replace the traditional FICO score, this more wide-ranging breakdown can be used to supplement a loan applicant’s financial picture. Both companies claim the additional data will help lenders avoid risk and open the doors of homeownership to more consumers.
“The new FICO Mortgage Score is designed especially for prequalification and origination and delivers increased insight when it matters most,” Joanne Gaskin of FICO said in a news release. “For many lenders, the increased predictive lift will translate into thousands of new mortgages, and the avoidance of millions of dollars in bad loans and associated costs. This innovation is a win-win for lenders and consumers alike.”
Data points from CoreLogic’s reporting represent a far-reaching look at a prospective borrower’s financial life. There’s both good and bad in this. Some of the information that may be available to lenders includes:
Even things like utility bills and cell phone bills might wind up in the mix, depending on your providers. Bizarre as it sounds, failing to mow your lawn could wind up hurting your chances of securing a home loan, as explained in a recent U.S. News & World Report article:
“There are plenty of local governments that can cite you for not mowing your lawn, leaving your garbage out on the curb overnight or owning one too many dogs. These types of local penalties may seem ridiculous and unfair, but they do have teeth. Many localities have the ability to place a lien on your property if citations remain outstanding. That means that it could get noticed by the new FICO score. Failure to mow your lawn really could lead to a rejection on your mortgage application.”
Moving forward, mortgage lenders will have access to all kinds of information about you they never had before. Consider it a double-edged sword. New data means new opportunities for inaccurate information about you to show up on a credit report. It also means prospective borrowers who’ve had problems with things like alimony and evictions may be in trouble.
But representatives from both FICO and CoreLogic are also confident that these changes will help boost credit profiles for many applicants, making it more likely they’ll qualify for home financing.
A whopping 70 percent of applicants have a better credit profile when this new credit scoring model is used compared to the traditional FICO score, according to Tim Grace, senior vice president of product management at CoreLogic.
A FICO analysis claims the new model would double the number of consumer with credit scores of 800 to 850.
“For a top-20 lender processing 300,000 applications a year, adopting this new score could translate into 3,900 more loans approved every year,” Grace said. “It not only provides a more complete and predictive evaluation of a consumer’s credit risk profile, but it can empower lenders to better mitigate risk and approve more loans for more consumers.”
Right now about two dozen lenders are testing this new credit score model. Whether it takes root throughout the lending industry remains to be seen.
Photo courtesy of Somerset Hills Doors & Millwork
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16 Comments
But trying to find a lender that is using this new scoring process is impossible. No one is willing to use this in the Columbus, Ohio area as I was just turned down for a VA loan, even though paying the mortgage payments would save me 2 to 3 hundred dollars a month compared to my rent right now (and that goes up for next month’s renewal) with a mid-score that was sitting at around 610 using the ‘normal’ scoring system.
610 is pretty bad bro, that’s why you weren’t given a loan.
But, if this new scoring model would have been what was used, my scores would have been a lot better, and I would have qualified. That’s the point I was trying to make, there is no one using this scoring system around here.
mine is 560 and im proud. i got a loan 7yrs ago and at 5 3/4 percent. i dont really give a crap about banks hope they all fail.
This should apply to everyone, not just the military.
That is what a VA loan is.. for the military, if you haven’t served then you didn’t earn that benefit.
It sounds like the new credit scoring system is something that everybody is looking at and weighing the possibility across the board, not just for VA loan.
As for VA loan benefits, it is certainly a privilege. However, there is a reason behind VA loan benefit. First of all, there are civilian counter part loan programs that works well for low-income families. I know many people who used that program to buy houses without doing downpayment AND closing cost. On the other hand, for VA loan, you still have to pay VA funding fee (just in case somebody defaults on a loan and forecloses, VA funding fee makes sure that it keeps VA loan program going). Another reason that military families need VA guaranty is because of the way credit history is established. If you have to move 5 times in 6 years (as it happened to my family), constant address changes and utility changes, etc. etc. could hurt your credit history (have you ever wondered why some applications out there ask you “have you lived in your address for two years or longer?”). I had such a hard time trying to talk to some businesses to hire me even with excellent resume and references, because all they saw was that I lived in 5 different places in 6 years. So securing income as a spouse can be tough (and time consuming when it takes months to transfer nursing license from state to state as well) Also, many military families live in government housing and that means there is no record of “rent payment” to show rental history that can prove timely payment. Many low-income housings do not accept military families (even if the someone qualified according to income guideline after adding housing allowance to his paycheck even, they denied his application saying he can just go into government housing-which was full and he couldn’t…), so government housing is the government-counter part for supporting low-income military families.
Anyway, the long story short, VA loan is set up in a way that works similar to how civilian counter part would work. Only difference is that VA loan has a bit different requirements considering the different situation that military families go through. If VA loan didn’t exist, many of these families will just end up using low-income civilian loan programs and saturate that market. So in a way, this is beneficial to both parties, military families and the civilians.
Dont feel bad Neil ! I live in North Carolina with a credit score of 740 ,own a mobile home that has been completely remodeled, the tax man classifies it as a house and with a mortage of only 33,000.00 and a tax value of 104,000.00 and still cant get a VA loan and I am 100% disabled !!! Go figure !!
It’s about time our veterans, past and present, got some recognition.
how do u find the 2 dozen lenders?
not sure what they mean here, i worked really hard to get my credit up past 640, once I hit that goal i made one call to apply for a home loan, they pulled my credit and told me my score were in the low 400′s. and after that i went back to my credit check monitoring service and my score dropped a hundred points after that call. there seems to be no oversight for these people. being 100% disabled and retired i want nothing more than to own a home for my family. but each step I take towards a purchase the worse it gets. I may have to just accept that i will never be able to own a home. a place for my kids to always come back too. at this rate we might just save up a little and move to south america. at least there we can afford to live.
I was tokd my debt ratio was too high and to paid off somethings so I paid off everything and got rid of my credit cards so wouldnt be tempted to use them and my score crashed to 620 and was told it had to be atleast 650 to get one
@WD: Getting rid of credit cards isn’t generally a good idea; it’s more about paying down debt and keeping a healthy balance of debt to credit. I would recommend you contact the Department of Secondary Approval at Veterans United Home Loans. They help veterans and active duty personnel (for free) build a path toward repairing their credit and getting prepared to prequalify. I’ve heard a lot of success stories from borrowers who were able to boost their score and secure financing. You can reach a DSA specialist at 888-392-7421. Let me know if you need anything else.
And how much do they charge for this service?
@Joe: Nothing. It’s free.
I made a similar mistake, too. I paid off one and got rid of the card and apparently what it does is that it lowers my “available cash to pull” so the debt ratio gets bad because well, say if you had $7000 debt out of $10000 credit limit, and if you close $3000 credit card after paying it off, that means now you have $4000 debt out of $7000… etc… So it’s kinda tricky.
What happened is that when you closed all your credit cards, the bank assumed the ONLY available cash you have is what you have in checking and you’ve got no emergency fund you can pull from. If you already have car payment and regular utilities you pay for, too, they actually see that as “debt”… So your debt ratio gets pretty bad if you consider that.
I may be wrong in some detail, but at least that’s the way things were explained to me. So if you want to keep your score up, you gotta pay your credit cards to low balance, but don’t get rid of the cards themselves…
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