Major Credit Score Changes Are Here
The CORONA Virus Has Brought Some Changes To The Credit System
#realestateinvesting #thekwakbrothers #realestate
Say Goodbye to FICO Scores | MAJOR Credit Score Changes
14,010 views
Aug 19, 2021
FULL TRANSCRIPT
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for many years the fico score has been a
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dominating factor when it comes to
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borrowers applying for a new mortgage
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credit cards and even auto loans but
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changes are coming and big lenders are
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moving away from using the fico scores
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but instead relying on their own data
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and metrics to determine the risk of a
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potential borrower even fannie mae and
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freddie mac the government-backed
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agencies are starting to consider using
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other types of data and other scores
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when it comes to securitizing mortgages
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so in this video we’re going to dive
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into how this will impact the housing
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market how this will change your ability
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to borrow money in the future and what
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could be the start of a social credit
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system
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[Music]
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so fico scores range from 300 to 850 300
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being really really bad and 850 being i
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mean pretty much perfect and the highest
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credit score i’ve ever seen was 835 so
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i’ve never met a person with the perfect
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850 fico score the way that fico scores
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are primarily calculated are first of
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all your payment history how well you
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pay your loans on time second being your
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credit utilization this is how much of a
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revolving credit you use and how much
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credit you use in general number three
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is your credit file age meaning how old
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is your credit the longer you have your
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credit file and information in your
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credit report the better as it gives
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more predictability and data for banks
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to go ahead and assess your risk number
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four is your credit mix so how diverse
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your different credit counts are do you
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have auto loans mortgage student loans
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credit cards the more diversity in your
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credit file the better and last but not
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least number five is new credit
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essentially how many of your credit
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cards and accounts are essentially new
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fico scores have been a gold standard
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for many many years for base success
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whether a borrower has the ability to
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pay back their loans but just like what
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i mentioned earlier banks are moving
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away from using fico scores in general
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you see fico scores have been dominant
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for a very specific reason and that is
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because fannie mae and freddie mac has
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been dictating that fico scores have to
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be used when lenders are using a credit
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score to determine and underwrite a
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borrower when it comes to getting their
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mortgages well for many banks and many
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lenders they pretty much said you know
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what if it works for mortgages it must
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work for credit cards and auto loans or
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because mortgages being a really high
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ticket loan they pretty much thought
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well it’s got to be the riskiest
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therefore it could work for other credit
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loans as well according to a recent wall
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street journal article fannie mae and
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freddie mac are now considering using
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other type of scores such as vantage
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score which is a rival score to a fico
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score when it comes to underwriting for
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mortgages you see something i haven’t
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mentioned is that there are different
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types of fico scores there’s fico 2 3
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and five five seven fico eight and a new
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fico nine there’s vantage 3.0 score
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national equivalency score there are
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thousands and thousands of different
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credit scores are out there but it just
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happens to be that fico score has been
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the golden boy because fannie mae and
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freddie mac set so added with the fact
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that millions and millions of homeowners
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and borrowers have gone through mortgage
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forbearance programs and loan deferments
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program due to care’s act last year it
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has completely thrown off the accuracy
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and how data has been stored when it
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comes to credit because the cares act
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has allowed millions of homeowners and
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borrowers to get into a variance
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programs without any negative
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consequences to their credit so
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obviously the banks are saying well that
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doesn’t really help our situation when
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it comes to assessing risk so that has
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ultimately resulted in banks looking in
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other directions and other data which
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we’re now starting to see individuals
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with really low fico scores even getting
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approved for mortgages and loans even
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big lenders like synchrony financial
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which they’re mostly responsible for
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store cards are now moving away from
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fico and has completely switched to
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vantage 3.0 so what exactly are banks
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looking at if they’re not looking at
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credit scores well banks are starting to
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look at deposit histories how often you
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go into overdraft and they’re looking to
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see what other financial credit and
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products are using when it comes to
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determining the credit worthiness and
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risk of the borrowers this could also
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lead into banks wanting to look at what
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kind of job you have they may want to
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see how much money you got stored up in
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your checking account or your savings
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account and how large your deposits are
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and how often those deposits are when it
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comes to pretty much determining the
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risk as a borrower so i’m going to
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change up the gear a little bit and talk
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about how this will impact the housing
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market and the real estate market in
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general so first of all this could be a
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really great news for individuals with
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great income history deposit history
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they rarely get into overdrafts maybe
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have they have really good jobs but they
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may not have a good credit history so
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that’s a good news for them as banks are
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increasingly looking at other data and
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they might not look at credit history as
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much so these individuals may get
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approved to go and buy a home therefore
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we may see an increase of demand and
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also more purchases down the road but on
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the flip side this change can exclude
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individuals with great credit but they
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may suffer in terms of deposit histories
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income and other factors outside of
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credit to me i see this going in one or
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the other way the first being is that
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we’re going to see a lot of borrowers
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with bad credit getting approved for
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mortgages which would drive up the
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demand and keep the pace going in terms
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of how hot the housing market is the
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other way that i can potentially see
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this going is that it’s going to have a
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complete lopsided changes when it comes
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to the underwriting system so we may
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basically see a wash between the people
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who can’t qualify and people who used to
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qualify not being able to qualify
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anymore so now we may see a complete 180
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degree change so when it comes to credit
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scores they are important but it is
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becoming less and less relevant when it
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comes to lenders looking at borrowers
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wanting to apply for mortgages auto
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loans car loans credit loans the whole
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nine yards so in the future if you’re
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looking to apply for a credit card for
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auto loan for a mortgage do know that
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banks are starting to shift and change
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not from just credit scores but also now
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looking at other factors as well now
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earlier in this video i ordered the
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words social credit and this might bring
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chills down to your spine or may give
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you goosebumps that’s because in china
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they are using a some form of a social
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credit whereby your choices your
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behavior your social status your job who
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you hang out with can determine whether
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you are qualified for certain financial
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products or you don’t qualify and that’s
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not all in some parts of china social
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credit is being also used to deny entry
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to certain services they may use social
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credit profile to allow you to vote or
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not allow you to vote and it’s got a big
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big major factor in pretty much how you
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live your life now here in the united
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states thankfully we do have laws and
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regulations that prevent things like
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social credit from happening but there
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is a bank that is starting to use
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something like a social credit system to
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determine your future ability to borrow
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money now there is a bank here in the
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united states that offer a very specific
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type of a loan that looks at what
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products you’re looking to buy now i
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know you’re saying well that’s pretty
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much everything right mortgages car
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loans i mean they want you to use a
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mortgage to buy a home but consider this
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there is a bank that offers what’s known
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as a buy now and pay later loans and you
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may have seen those in certain you know
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shopping sites that are out there well
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this bank is wanting to see what
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products you’re buying to determine
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whether you qualify for that loan or not
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so for example a fitness equipment if
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the bank knows that you’re borrowing
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money to buy a fitness equipment they
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see that as a positive step to
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increasing your health and your your
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quality of life and therefore the banks
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are more likely to approve that loan
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versus if you went out and said you know
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i’m gonna borrow money to buy the latest
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video game console this bank just may
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deny your loan purely based on what
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you’re buying and they think that you
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might get addicted and they may
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determine that buying a new video game
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console might be a bad direction to your
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life’s quality so while this may not be
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a full-blown social credit system it is
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a step towards really debates
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determining how we live and what choices
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we make and the freedom that we get to
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choose whether we want to buy video game
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consoles or a fitness machine or fitness
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workout machine so i don’t know what you
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guys think about that go and leave your
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comments down below is that step towards
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what could be a social credit system or
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is that smart is that something that the
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banks should start to use i don’t know
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tell me what you guys feel and think
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down below in fact what i’ll do is as
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soon as this video is published i’ll
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spend the next hour replying commenting
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and having a conversation with you guys
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so that’s it guys for this video there’s
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a lot of changes coming to the credit
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scoring model and how borrowers are
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being assessed for risk so if there are
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other changes coming down the road
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definitely subscribe because i’ll tell
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you guys exactly what those changes are
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that being said thank you so much for
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watching and i’ll see you in the next
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video