FICO updates credit scoring model affecting home buyers
FICO has introduced a new credit scoring system that analyzes payment trends over time, potentially altering mortgage approvals for home buyers. The model aims to provide lenders with a more accurate risk assessment. This change could benefit consistent payers but penalize those with recent lapses.
FICO, the company behind the widely used credit scores, is rolling out an updated model known as FICO Score 10T. This version incorporates 'trended data,' examining a borrower's payment history over the past 24 months rather than just static snapshots.
The update builds on previous iterations like FICO Score 9 and 10, with the 'T' standing for trended credit. According to the article, this shift allows lenders to see patterns, such as whether someone has been paying bills on time consistently or if delinquencies are worsening. Will Lansing, CEO of FICO, stated, 'By using trended data, we can provide a more dynamic view of credit behavior, helping lenders make better lending decisions.'
For home buyers, the implications are significant. The FICO score, ranging from 300 to 850, heavily influences mortgage interest rates and approval odds. An average score hovers around 714. Under the new model, individuals with steady payment histories could see score improvements of up to 20 points, making it easier to secure favorable loan terms. Conversely, those with recent missed payments might experience score drops, as the system weights ongoing trends more heavily.
Major credit bureaus—Equifax, Experian, and TransUnion—began providing trended data to FICO in 2020, but widespread adoption by lenders is expected to accelerate in 2024. The article notes that this could impact over 110 million U.S. consumers eligible for the new scores. Mortgage lenders, who rely on FICO for about 90% of decisions, may gradually integrate the model, though not all will switch immediately.
Experts caution that while the change promotes fairness by rewarding good habits, it could disadvantage borrowers recovering from short-term financial setbacks, like those affected by the pandemic. No immediate contradictions appear in the reporting, as it draws from FICO's announcements and industry analysis. Overall, the update seeks to modernize credit evaluation in a data-rich era, but home buyers are advised to monitor their payment behaviors closely.