Times are changing and mortgage lenders and other related industries are making changes to keep pace. The company behind the well-known FICO credit scoring system has recently rolled out a new scoring system and some are questioning whether it will help or harm borrowers.
FICO joined forces with CoreLogic to develop the new system with the intent of giving lenders more confidence when it comes to evaluating potential borrowers. Lenders probably find themselves in a somewhat tenuous position these days when it comes to deciding whether a borrower is a good risk or not.
Not too many years ago lenders were handing out mortgages to just about anyone with a pulse. That greed contributed to the real estate market crash that is still playing itself out despite rosy reports and predictions from politicians and government officials.
Although the new FICO scoring system relies heavily on signals that have been used in previous versions, new data points have been added that include property transaction data, landlord and tenant information and borrower-specific public data. In other words, they have dialed up the power on the microscope that these snoops use to spy on consumers.
The amount of data that big companies like Experian, TransUnion and Equifax collect is never enough and likely never will be enough. As consumers embrace technology like debit cards and electronic money transfers we unwittingly make it even easier for these snoops to collect data on us.
As expected, company executives downplayed any negative effect this new FICO scoring system will have on consumers. Many consumers have actually experienced an improvement in their FICO score as a result of the new system if FICO executives are to be believed.
Guess what? I think they may even be telling the truth about improving FICO scores for consumers as a result of the new scoring system and there’s a simple reason why.
The real estate market crash and general poor state of the economy has hurt a lot of consumers. As a result, many consumers have probably found themselves with a FICO score that is less than desirable. A low FICO score limits a consumer’s ability to access credit and get approved for a mortgage.
It’s the enormity of the current financial crisis that may have the big banks and other lenders worried about the future. Those big institutions make money – and lot’s of it – by lending money to consumers. The more they lend, the more they make. That’s why they were so eager to pass mortgages out like candy a few years ago. Their greed got the best of them and will likely get the best of them again some day.
With millions and millions of consumers who now have poor credit, the pool of borrowers has been reduced. That’s not good news for the fat cats in the business of making money by lending it to consumers for mortgages, SUVs and big screen TVs.
Perhaps this new FICO scoring system is just the first of many steps that will be taken to bring many battered consumers back up the FICO scoring ladder so that they will be eligible to borrow money again.
I expect we will see a time in the not-too-distant future when it will be easier than ever to repair your credit and get that FICO score back up where it once was. After all, the big banks need as many borrowers as they can get in order to keep the profits flowing into their coffers. After all, can anyone really have too may yachts?
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