This year, each of the three major credit reporting bureaus is rolling out a new policy, and it could mean good things for consumers. After all, a person’s credit score impacts everything from their ability to rent an apartment to a mortgage interest rate.
As a real estate agent, you may see how this impacts your clients directly. For many clients, getting a house will be easier. In other cases, lenders could make decisions that take into account changing scores. Here’s what you need to know.
How Do Credit Scores Work?
As you likely know, credit scores range from 300 to 850. A score higher than 700 is considered good, but most people looking into buying a house will want scores higher than 760. A credit score is based on payment history, credit utilization, credit history length, credit inquiries, and the number of accounts open.
What Is Changing?
The three major credit bureaus are improving standards by which they use records to report scores. Beginning just recently, the bureaus will exclude tax liens from all credit reports. This could impact some 11% of adults in the United States, many of whom will see an increase in their score up to 30 points.
If someone has failed to pay local, state, or federal government taxes, they may have a lien filed. In the past, tax liens have been included in credit reports. Tax liens were previously included because they indicated that one was unable to pay overdue taxes and thus may not be able to pay other types of debt. Unfortunately, even people who have paid off their liens may still see this reflected in their score for years.
Civil judgment data was also included in credit reports. Judgments may have been made against a person in court, and they have previously reflected as such in a credit score. Even paying off a judgment could mean that the bad mark stays on a person’s credit report for a certain amount of time.
What Do the Changes Mean?
The first change resulting from these new rules could be that more consumers qualify for home loans, which could initially be positive for business. People who were held back by their credit scores in the past may soon realize that they have the opportunity to buy a home, possibly for the first time in their lives.
On the other hand, mortgage companies may begin to change their rules for approving loans. They may develop new programs for those with scores that have increased under new guidelines. Sub-prime mortgages are not a thing of the past, so it may feel that a burden falls on your shoulders to discuss loan offerings with your clients.
All of these changes also mean that real estate agents should pursue real estate continuing education to stay up-to-date with industry shifts. No matter where you live, you can keep up with changes that influence your industry. Choose your state now!