In a recent 75-minute webinar for MGIC, I answered frequently asked questions about credit scores and credit reporting from clients, colleagues and borrowers in 2023. Read on for 6 tips that can help loan officers and borrowers succeed, stay educated, and avoid delays in the homebuying process.
1. Get ready for updates to credit scores in the next couple of years.
In October 2022, the Federal Housing Finance Agency (FHFA) announced plans for several updates to credit scores, including:
- Moving to credit score versions FICO® Score 10 T and VantageScore 4.0
- Incorporating the option of a bi-merge credit report rather than a tri-merge credit report
The process is scheduled to begin in 2024 and continue throughout 2025.
2. As of April 2023, the way medical collections are reported to credit agencies has changed.
All medical collections less than $500 (paid or unpaid) are no longer eligible for reporting to credit agencies. Any medical bill over $500 that has been sent to collection cannot be reported for at least 12 months.
3. It’s important for consumers to regularly review their credit reports for accuracy.
Consumers can access free personal credit reports from AnnualCreditReport.com on a weekly basis. Consumers can also access their credit reports from sources such as FICO, Credit Karma, Credit Sesame, VantageScore, and directly from each credit bureau.
4. Follow these best practices both before and after pulling a consumer’s credit report.
Before pulling credit:
- Ask borrowers to temporarily lift any lock or freeze
- Ask borrowers if they have any disputed files. Some investors may require these to be removed
- Confirm all borrower information is accurate to avoid mismatch alerts
- Encourage borrowers to opt out of being contacted by telemarketers well in advance of pulling credit to avoid trigger leads (read takeaway #5 below for more on this!)
After pulling credit:
- Contact your credit reporting agency (CRA) before re-pulling any credit if you find locked or frozen files; or there are mismatch alerts due to entry errors (e.g., address, name, SSN)
- Review the report. Why did your borrower receive these scores? Are you confident discussing these scores?
- Review the report with your borrower to determine if there are any reporting errors
5. Encourage consumers to consider opting out of being contacted by telemarketers to avoid trigger leads.
Currently, there are bills in the House and Senate that propose regulating when and how consumers can be contacted. In the meantime, the best solution is to opt out at OptOutPrescreen.com and DoNotCall.gov.
6. Soft hit credit reports can also help prevent trigger leads.
Soft hit credit reports:
- Do not generate trigger leads
- Do not impact credit scores
- Include consumers checking their personal credit reports, as well as applications for rent, employment and insurance; and pre-closing credit reports (refreshed credit reports)
Currently, the GSEs are piloting soft hit programs. Expect to see pre-approval soft hit reports from the credit bureaus in 2024 that can be run through automated underwriting before a lender pulls a final hard hit report prior to closing.
FICO® is a registered trademark of Fair Isaac Corporation.
The opinions and insights expressed in this blog are solely those of its author, Mike Olden, and do not necessarily represent the views of either Mortgage Guaranty Insurance Corporation or any of its parent, affiliates, or subsidiaries (collectively, “MGIC”). Neither MGIC nor any of its officers, directors, employees or agents makes any representations or warranties of any kind regarding the soundness, reliability, accuracy or completeness of any opinion, insight, recommendation, data, or other information contained in this blog, or its suitability for any intended purpose."