Today I learned that the way the credit scores have been calculated for years is being overhauled for the better. The changes will result in higher scores for many consumers who may have had difficulty in the past. Basically, the score will be determined using a system that will not calculate any bills that were previously settled through collection agency and will give less weight to unpaid medical bills that are with a collection agency. Previously these records remained as part of the credit score formula for up to seven years and negatively affected scores. These new moves are designed to help provide easier lending practices without increasing the risk.
This can be very helpful for many people who are on the fence with their credit scores when trying to purchase a home or those who would have to pay a higher interest rate to secure a loan.
This new practice will roll out in the Fall, first to credit bureaus and then later to lenders. Credit card and auto lenders will likely be first to start using the new system with mortgage lenders to follow. The new scoring system can significantly impact many borrowers as unpaid medical debt affected approximately 41 million people in 2012. Now, since it won't be an issue scores can be 25 points higher which can lead from a 759 score that would allow an interest rate of 4.045% interest rate on $300,000 loan to a score between 760 -850 getting a 3.823% rate on the same loan. This is a difference of $13,764 over the life of a loan.
This is great news and will make owning a home more affordable and easier for many applicants.
If you have any real estate or area related questions or you're interested in buying or selling a home in Northern Virginia, contact or call Cleo 1.703.609.7407 & put our team of Northern Virginia home experts to work for you!