Could new credit score model become the norm?

by Steve Randall20 Apr 2017
Could new credit score model become the norm?

While most mortgage lenders use FICO scores, there are a few that use the alternative VantageScore service operated by a consortium including Experian and Equifax.

That service is changing its model later this year, CNBC reports, and it could mean a change to the way some consumers choose to manage their credit; and may even prompt a wider shift in credit score metrics.

A key change is that trended data will mean increased scores for those borrowers who show good month-to-month management of their credit including paying down debt rather than just making minimum payments on credit cards and loans.

"When it comes to prime borrowers, you may not have bad behavior on your credit file, but a trajectory provides very powerful information,"
Sarah Davies, senior vice president for research, analytics and product development at VantageScore told CNBC.

The new scoring model will also be bad news for those with large available credit values which are not being used. Instead of using a smaller proportion of available credit, VantageScore will see that as potential risk due to the potential to suddenly increase debt levels.

Tight inventory relief could be on the way

There could be some relief on the way for US housing markets constrained by tight inventory according to data from First American Financial.

The global real estate title insurance and risk solutions provider’s Potential Home Sales model for March shows that the market potential for existing home sales was up 0.6 per cent year-over-year but it is underperforming its potential by 2.3 per cent.

That means that there could be 129,000 more sales nationwide than there have been, but the underperformance has improved from a year earlier when there was a 275,000 gap on a seasonally adjusted annual rate.

“Despite higher mortgage rates, the potential for home sales increased on an annual basis driven by steady income and job growth, along with a surge in building permits,” said Mark Fleming, chief economist at First American.

Fleming says that there may be some relief ahead for markets which are not fulfilling their potential due to that increase in building permits, although it may not benefit the spring buying season.

Cities with most overleveraged mortgage debtors revealed

A Californian city has been revealed as the city with the most overleveraged mortgage debtors in the US.

Analysis of 2,533 cities; based on median mortgage debt against median income, and mortgage debt compared with median home values; was conducted by WalletHub.com and San Luis Obispo was found to have a mortgage-debt-to-income ratio of 2,014 per cent.

Florida is represented at both ends of the scale for mortgage debt to house value. Naples has the lowest at 25 per cent while Brooksville has the highest at 214 per cent.

East St. Louis, Ill has the lowest mortgage debt to income ratio at 199 per cent and the lowest median mortgage debt at $36,488 compared to Beverly Hills which has the highest at $684,426.

Also listed among the most overleveraged cities are Williamsburg, VA; Brooksville, FL; Bay Point, CA; and Willis, TX. The least leveraged include Moline, IL; East Chicago, IN; Dodge City, KS; Los Altos, CA; and West Mifflin, PA.

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