Loan Modification

Not enough credit to have a good credit score? Your rent may change that!

By Gina Pogol

A new problem for people who have just started to use credit or who are “underbanked” as the socio-economic analysts like to say is the imposition of minimum credit scores for FHA mortgages (580 with a 3.5% down payment). Add the lender overlays, which can require minimum scores of 640 or even higher, and the number of deserving folks who can’t make the cut goes up. In the past, folks with low scores but little or no derogatory credit could still get a mortgage. Underwriters were directed to comb the borrower’s accounts and a conservative attitude regarding credit use was not to be held against them. In fact, it was considered a good thing in many cases.

Today, however, these underbanked people, who use little or no credit and may not even have checking accounts are at a serious disadvantage when it comes to securing FHA financing because they may not have a high enough credit score even if they never ever missed a payment.

But there is good news! Experian has announced it has begun incorporating rental data from its RentBureau Division into the traditional credit file, providing a boost to the scores of an estimated 50 million underbanked consumers, which can include everyone from college students and recent graduates to immigrants.

According to the National Multi Housing Council, nearly 96 million people currently renting are not getting credit for those payments included in their credit reports. Positive rental history will now help many renters, including those who lost their homes and must now rebuild their histories after foreclosure or bankruptcy.

What this means though for renters is that you won’t be able to make your payment late with a late charge being the only consequence. Make sure that the credit that gets included in your report is positive.

Full post as published by FHA Mortgage Guide on January 20, 2011 (boomark / email).