There are many different credit scoring models on the market. But most lenders use the FICO score to make approval decisions. This is especially true when it comes to mortgages. In fact, both Fannie Mae and Freddie Mac exclusively check FICO scores when consumers in New York seek home loans. Fannie Mae and Freddie Mac are government-controlled organizations that guarantee (or back) U.S. mortgage loans. Now, however, the Federal Housing Finance Agency (FHFA) wants Fannie Mae and Freddie Mac to also consider the VantageScore. Because of its different credit scoring standards, the VantageScore might make more New York consumers eligible for mortgage approval.
What New York Consumers Should Know about the Differences Between the FICO Credit Scoring Model and the VantageScore Model
The VantageScore credit scoring model was created by the three major credit bureaus: TransUnion, Equifax, and Experian. It uses “alternative data” in order to calculate credit scores for New York Consumers who are unscorable according to the FICO model. Because of this, a VantageScore representative stated that the credit scoring model could:
“Assign credit scores to 30 million more people than FICO and potentially make 7.6 million more people who use little or no credit eligible for a mortgage.”
Established in 2006, VantageScore uses non-traditional information in credit score calculation, and it places less emphasis than FICO on certain factors. For example, in the FICO scoring model, available credit vs. utilized credit accounts for 30% of a credit score. Whereas, the VantageScore places much more value on age and type of credit, as well as payment history. The number of new credit accounts opened also has little impact on credit scores calculated by VantageScore.
Why Critics of the VantageScore Credit Scoring Model Claim that it Won’t Actually Help New York Consumers Looking to Purchase Homes
First, representatives from FICO claim that VantageScore has an unfair advantage because it was created by the three major credit bureaus. Second, government opponents of the FHFA’s proposal to use VantageScore say that it would ultimately cause trouble. These critics say that VantageScore credit scores don’t often give lenders an accurate impression of an applicant’s credit worthiness.
Ultimately, those who oppose FICO score alternatives in mortgage lending fear that consumers in New York might get approved for home loans that they can’t really afford. This, they say, might lead to foreclosures, bankruptcies, and heavy credit score damage. Yet, regardless of the credit scoring model use, most credit experts offer similar advice to New York consumers looking to finance homes. They tell these prospective homebuyers to repair their credit before filling out mortgage applications.
How Consumers Can Improve their Credit Scores Before Financing a Home in New York
For now, consumers in New York need a credit score of at least 580 in order to qualify for a government-backed FHA loan. If they can get their credit scores up to 720 or higher, they can secure traditional mortgages. And these mortgages typically come with better interest rates. Therefore, it is important to get your credit score into the best shape possible.
First and foremost, New York consumers should make sure that all of their current bills are up-to-date. Next, they should pay down high credit card balances until they are using no more than 30% of their available credit. After all, most mortgage lenders still use FICO scores when making approval decisions. Therefore, your credit utilization rate factors heavily into your credit score calculation.
Finally, well before they start shopping for a home, consumers in New York should check their credit reports. Unfortunately, because creditors and the credit bureaus often mishandle consumer information, most New York credit reports contain errors of some type. Also, many of these inaccuracies are harmful to credit scores.
Just go to www.annualcreditreport.com, and request your free annual credit reports from TransUnion, Equifax, and Experian. Then, carefully review all three credit reports to check for credit score damaging mistakes and errors. Under the Fair Credit Reporting Act (FCRA), you can dispute and demand the removal of credit report inaccuracies. However, you must do this before applying for home loans. This is because you cannot get approved with open disputes on your credit reports.
The Free and Legal Way to Get Better Credit in New York
If you discover that your credit score is unnecessarily low because of errors on one, two, or all three of your credit reports, don’t attempt the dispute process on your own. Instead, contact Credit Repair Lawyers of America, and let our team of credit pros do the work for you. You’ll also get access to an experienced credit attorney who will get you clean credit reports no matter what it takes – legally and for free.
Don’t let errors on your credit reports bring your credit score down. At Credit Repair Lawyers of America, we’ve been cleaning up credit reports for consumers since 2008 for free. How do we do it? All of our fees come from the defendants in settled cases. This is why our clients pay nothing for the work we do.
Let’s start the conversation about what we can do for your credit. Set up your free consultation today by calling Attorney Carl Schwartz at (646) 859-3045 or sending him a message through our contact page.
For more information about Free Credit Repair, please visit https://creditrepairlawyersam.com/credit-repair-free/.
