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And so it begins. Which credit score to use to provide the best profile of a potential borrower? Is it FICO, FICO Stage9 or, maybe, the new VantageScore? (Credit Scoring)
For the past several years, the industry has mainly relied on the good old three digit FICO score. Some say that is no longer the most representative of a consumer’s credit profile or history. That includes the US Congress.
The Credit Score Competition Act has been introduced in the House by Rep. Terri Sewell (D-AL) and Rep. Edward Royce (R-CA) with bi-partisan support.
It is intended, so they say, to provide access to loans to more consumers based on a more comprehensive credit score. Or, could it be that the lobbyists for the providers of the new VantageScore got their ear. Maybe, I’m just being a little cynical. But, I digress…
Fannie and Freddie have already agreed to the use of a more comprehensive credit scoring process. This would include a consumer’s record of making payments on alternative forms of credit not traditionally reported to the credit bureaus.
However, that would mean that such payment experience must start being reported by the creditors. The main alternative is rental history. Will landlords begin reporting? How about landlords who may not report the rental income on their taxes?
The intent is to eliminate the so-called credit score monopoly held by Fannie and Freddie and open up more opportunity for consumers to be approved for mortgage loans. That would be great on all fronts; housing, lending, and for the consumers.
As long as that is what it’s really all about. Could it just be about Congress looking good in the eyes of the public while satisfying the wants of certain credit score providers? The key will be whether the alternative service providers, like landlords, utility companies and cellphone services will report the consumer’s payment history to the repositories. Otherwise, there is no benefit to those consumers with a limited traditional credit history.
Whatever happened to those good old days of a qualified, trained underwriter reviewing all information about a consumer, including the payment history for rent and any non-traditional credit, to approve a loan? We now need an Act from Congress to determine credit scores. What could be next?
The game has changed. Play different my friends.
