Changes to Credit Reporting and What it Means for 2023 Buyers
For many who are looking to buy a home, the variability in interest rates may have put a halt to your search. Some of our Buyer clients have concerns about obtaining financing, as a result of their credit scores as interest rates rise, they assume they won't qualify.
If you share these concerns, we have great news. There are big changes to how credit is being calculated and debts reported that may impact your ability to borrow, in major positive ways. Let's go over the five major changes to credit reporting in 2022 that impact your ability to borrow in 2023.
The No Change Change. Credit scores stalled in 2022. Overall the average gain was 7 points, which takes scores back to pre-pandemic levels. Experts posit that the inflation and uncertainty of forbearance programs have taken a toll on people with lower credit scores.
FICO 10T and VantageScore 4.0These are new scoring models that lenders are using to assess borrowers who are financing or refinancing using Freddie Mac or Fannie Mae. These models take into account recent payment history including rent, utilities, phone payments, and a snapshot over the past two years. When scored by the VantageScore 4.0 model, 10.7 million more people could qualify for mortgages, including minorities and first-time home buyers than under older scoring models.
Buy Now, Pay Later Many people now take advantage of these offers and in 2023 borrowers who have successfully used these will benefit on their credit reports. If you have a relatively recent credit history or do not have much borrowing in your name, this feature can greatly boost your score if you pay on time. According to Equifax,Consumers with thin credit files consisting of two or fewer accounts or had young credit files – where history was less than 24 months old and saw a FICO score increase of 21 points when positive BNPL payments were included.
Medical Debt Removal. All credit bureaus are taking measures including removing old debt, allowing debts to be settled and other measures that reflect a transition to lessening the importance of medical debt on credit. Borrowers are seeing increases from 20-100 points.
Rent Reporting. Experian Boost allows tenants to report on-time rent, which is a very large boost in credit scores. Being able to report on time payments is a step by lenders towards more equitable lending practices. This is great if you are a first-time home buyer and looking to establish more credit, without lots of lending.
Are you considering buying a home in Cary, Durham, Hillsborough, or Chapel Hill? See links to search homes, and contact My NC Homes to discuss how you might be able to leverage new credit scores and incentives to purchase a home in The Triangle. We are seeing many creative to finance homes and so many people eager to buy.
&Posted by Larry Tollen on
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