Credit scores have always been an important number that affects homebuyers’ ability to qualify for mortgages and specific rates. Ever since the 2008 crash, the importance of credit scores in the home buying and loan qualification processes has reached an all time high. It is certainly an oversimplification to say that a high credit score usually results in qualification for a low rate, while a low credit score typically meant a higher rate or no qualification at all. But that statement is also generally true.
Credit scores, widely known as FICO scores, were originally established by Fair Isaac Corporation to provide lenders with a basis for measuring risk and loan eligibility for borrowers. Credit scores are calculated using sophisticated algorithms that analyze consumer credit behavior, which is recorded and monitored in credit reports produced by three organizations: Experian, Equifax and TransUnion. Credit scores range from 300 (not good) to 850 (excellent).
This fall, FICO is announcing revisions to the formula it uses to calculate people’s credit scores. For certain groups of consumers, the revisions will result in better credit scores and better chances for home shoppers to qualify for mortgages and lower rates. The new formula, named FICO 9, will include several changes, but the three revisions that are likely to have the biggest impact for homebuyers and loan seekers are:
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