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Credit Scores Are Important, but They're Not Everything

Credit Scores Are Important, but They're Not Everything

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

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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?

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Alithyra Alithyra 7 years
Wait, utilities and rent aren't included in a credit score? I always thought that since they're accounts they were in the same category as a credit card. It makes a ton of sense that bill-paying would be included. I've also got a friend who refuses to get a credit card, and his parents pay for his car loan, so he has -no- credit. This will help him out a lot when he wants a mortgage.
Spectra Spectra 7 years
Considering how many little piddly things can really screw up your FICO score, I'm glad lenders are going to look at other things besides just that number. Taking out too many credit cards, closing too many credit cards, screwing up once when you were 18, etc....lots of people do that and are still responsible people. I think they need to look more into people's bill-paying habits (like whether or not they've ever defaulted on a loan, do they pay on time, etc.) and rental history (if they pay their rent on time, it's a pretty good bet they'll pay the mortgage on time) when approving people for mortgage loans. It's also probably a good idea to start being more conservative about how much to loan people...as in, only approve people for a mortgage amount that they can REALISTICALLY afford. Not how much they can afford if they work 20 million hours of overtime and get a bonus and put every cent toward their mortgage each month. Some banks/credit unions already do that, but some are way too generous, IMHO.
ilanac13 ilanac13 7 years
well i think that the fact that they may not rely on a credit score is a good thing given that i have been really really responsible with payments for the last 5-6 years but because of some messiness in college my score is lower than i'd like. i think that if they are able to look at other factors too - then that's a good thing. i have always paid my rent on time and my mortgage on another place - so hopefully that'll do some good for me when i need to get a car or loan or whatever the situation is.
EvilDorkGirl EvilDorkGirl 7 years
Sure, sounds fair to me. Typically people with good credit scores are going to be the ones who pay their bills on time. After all, if you don't pay your phone bill for 2-3 months, it could go to collection which will most certainly mess up your credit. Also, does a "0.7 percent chance of defaulting on a loan" and "1.5 percent of year-old mortgages" work out to mean that people with credit scores above 680 are more than 0.7% likely to foreclose on a house? That math kind of seems like comparing apples to oranges... one is discussing the probability of a set of all homeowners with credit scores >680, whereas one describes actual foreclosures in a relatively limited group (people who have had mortgages for 1 year only).
aimeeb aimeeb 7 years
I like this idea. I screwed my credit when I was 20 and at almost 27 I'm still waiting for it to be fixed, damn 7.5 yrs. It'd be nice to have something other than a bad credit report to show people since I rectified the damage and have impeccable track records on paying my rent, cell phone bills and so forth.
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