For any Metairie or New Orleans resident who has ever been
stymied by seemingly arbitrary (or, put another way, nutty) lowering of his or
her all-important credit score, next
month’s beginning rollout of Fair Isaac’s new credit score model should
be welcome news. It will be known as “FICO 9”—and promises to correct a few of
the previous model’s inadequacies.
Why now? It’s been six years since San Jose’s Fair Isaac Co.
last tinkered with their credit score methodology. Hmmmm…it’s been six years,
too since the financial crisis of 2007-08, which Wikipedia correctly describes
as “a major global recession characterized by various systemic
imbalances…including high levels of household debt...”
You might expect that the accuracy of many a Metairie or
New Orleans credit score could have been thrown off-kilter during the crisis—if
not throughout the painfully slow recovery that’s followed. If, for example,
someone is laid off, then suffers a sudden medical emergency, a formerly
spotless credit history would be seriously distorted. Add in regulatory pressure
on the banks, and many truly responsible individuals could suffer unfairly. As The Wall Street Journal summarized in a
recent article: “Since the recession,
many lenders have approved only the best borrowers, usually those with few or
no blemishes on their credit report.”
Keep in mind that the whole purpose of a FICO credit score
is to help lenders predict the likelihood that an individual will repay a debt.
Lenders pay for accuracy in credit scores—and last year they bought 10 billion
of them!
BUT…because of two specific problem areas, the scores gradually
were becoming less reliable as predictors. First, there was the fact that once a
bill was sent to collection, it showed as a black mark—one that could lower a
credit score by as much as 100 points—even after
it was paid. For as long as seven years
after it was paid! So FICO 9 will not penalize borrowers with a collection on
their report once no balance remains.
Then there was a problem with medical debt scoring. According
to WSJ, as of last month, more than 64 million consumers had a medical
collection on their credit report. That would account for many a Metairie or
New Orleans credit score being adversely affected—sometimes even when it had
been an insurance company which rejected the charge…and sometimes when the
consumer wasn’t even notified of the situation! Worse yet, when a Consumer
Financial Protection Bureau report came out in May, it found that many
borrowers’ credit scores weren’t being raised even after they repaid such a
debt. FICO 9 will count medical debt sent to collections as less important than
other kinds of debt.
The new scoring changes
are expected to ease access to loans—Metairie and New Orleans mortgage loans
included—without materially raising the risk exposure to lenders. But if
history is any indicator, wholesale rejoicing may have to hold off for a while,
because mortgage lenders can be slow to adopt changes in credit scoring.
Nevertheless, if you are soon to start looking for a new Metairie or New
Orleans home, I’d recommend checking your current credit report to be sure all
is accurate. Then call me!
View Homes For Sale in New Orleans
Terez B. Harris
Terez Harris NOLA Real Estate Group
Terez Harris NOLA Real Estate Group
(504)297-2619
www.TerezHarris.com
TerezHarris@kw.com
Search the MLS!
(multiple listing service)
Search Terez's Active Listings!
TerezHarris@kw.com
Search the MLS!
(multiple listing service)
Search Terez's Active Listings!
Terez B. Harris Terez Harris NOLA Real Estate Group 504-297-2619 www.TerezHarris.com
Keller Williams Realty New Orleans 8601 Leake Ave. New Orleans, LA 70118 504-862-0100
Keller Williams Realty New Orleans 8601 Leake Ave. New Orleans, LA 70118 504-862-0100
Each office independently owned and operated. All brokers and agents licensed in the state of Louisiana.
No comments:
Post a Comment