The way FICO scores are calculated is changing this summer, and the move could make it tougher for some Americans to get approved for a mortgage, The Wall Street Journal reports. That means if you’re even considering buying a home in the near future, do it sooner rather than later. With interest rates around 3.6% for a 30 year loan (January 29, 2020), rates are at the lowest levels in three months and about a quarter-point above all-time lows. Last year at this time, 30-year rates averaged 4.45%. With the current lower interest rate, you can afford more home than you could last year. However, your monthly mortgage payment will be determined by your credit score. The higher your credit score, the lower your interest rate, resulting in a lower monthly mortgage payment and allowing you to potentially qualify for a more expensive home. Maybe you want to move to a home in a better school district, need a larger home for the new baby, or you want to move into an active adult community with all of those fun amenities.
Just how could this impact borrowers? According to The National Association of Realtors, consumers with high FICO scores of 680 or higher who continue to manage their loans may see an increase in their scores. But those with scores below 600 who continue to miss payments or have blemishes on their credit will see even larger declines in their scores. The best way for consumers to increase their credit score: Pay down bills on time and reduce any credit card balances, financial analysts say. They also advise that borrowers keep revolving debt below 30% of their available credit so that they don’t see a larger impact to their credit score.
According to FICO, the average score nationwide is now over 700—the highest on record. FICO estimates that about 110 million consumers will see a change of less than 20 points to their score under the new credit score model. Overall, roughly 80 million consumers will see a change in score of 20 or more points in either direction, upward or downward, FICO says.
The important takeaway is how this change will affect you and your lifestyle. From your home loan to your car loan to your credit cards – now is the time to start working on your financial “house” so you won’t be negatively impacted when the new FICO scoring model comes out this summer.
Some people think their credit score is too low to buy a home, or that they have too many blemishes on their report. We can connect you with the right people so you can get on the track to repairing your credit and increasing your credit score. Contact us for a confidential meeting today.