When it comes to our financial resumes, consensus is that credit scores are the number one factor that lenders rely on to determine the credit-worthiness of a borrower. After a year of one home foreclosure after another, some mortgage lenders have begun investigating financial habits that tell a bigger story than what the credit score can offer. Find out what has changed in the lending world when you read more.
While credit scores are far from obsolete, some lenders believe the scores alone don't do a good job of distinguishing credit-worthiness of those with average scores. Time points out that a few years ago, Fair Issac predicted a borrower with a 680 FICO score had 0.7 percent chance of ever defaulting on the loan, and someone with a 700 score had a 0.3 percent chance. However, 1.5 percent of year-old mortgages belonging to borrowers with credit scores between 660 and 720 have had their homes foreclosed or are in the process of foreclosure.
Phone payment records and other alternative credit information, like rent payment histories, are now being used more frequently to determine a borrower's ability to repay a loan. What do you think of this practice? Do you think whether or not someone consistently pays their phone bill on time should be weighed along with your credit score?