If one of your 2011 New Year’s resolutions is to buy a home, start working now to boost your credit score. The rules of credit scoring are about to get much more rigorous, according to an article from the website Walletpop.com.
FICO and VantageScore, the two most widely used credit scoring systems, have been significantly changed to help lenders know who might decide to strategically default on a mortgage. The new credit scoring rules mean banks can more effectively manage their lending risks and perhaps prevent future strategic defaults.
VantageScore has become VantageScore 2.0, which now checks a larger set of credit data over a longer period of time. For borrowers, this system now puts more emphasis on some credit behaviors than others. For example, filling out lots of new applications for credit—i.e. shopping around—now accounts for 30 percent of your score. Under the previous version it was 10 percent. But your balances and length of credit history are now less significant.
FICO is now FICO 8 Mortgage Score and officials claim it can more accurately predict defaults by 15 to 25 percent. One FICO executive says it has the “ability to use the most advanced predictive analytics to compete and win in this highly challenging environment.”
With all of this data now available to lenders, who are jittery in this economy, it could be more difficult to qualify for a mortgage. For your best chance, learn how the new rules operate and keep your credit rating as solid as possible. It’s all about proving to lenders that you’re well worth their risk.
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