In the mortgage game, there is an oft overlooked group of potential borrowers – those with practically no credit to speak of. Younger borrowers or Millennials who have shied away from credit cards and other loans (often because of their sizable student loans) often get turned down for mortgages, not because they have bad credit, but because they don’t have enough credit to assess their risk as a borrower. Lack of data is not usually a plus for mortgage underwriters.
The mortgage industry is constantly trying to find ways to expand their client base, but the mortgage meltdown of a decade ago still stings a bit. So the pursuit of “sub-prime” borrows is not a risk they are willing to take yet. However, the potential of “thin file” borrowers has piqued their interest; these are borrowers who have fewer than 5 credit accounts. But how do you assess how well these thin file borrowers manage their money and what risk they pose?
Enter the brand new Experian Boost program. It’s a first-of-its-kind platform that allows consumers to use data from telephone and utility payments to influence their credit scores. However, this is a “opt-in” program, so not all consumers will automatically be evaluated on this criteria. If you want Experian to include your utility payments, you must first enroll on the Experian Boost website.
Here’s how it works: once a consumer opts in, they grant permission for Experian Boost to connect to their bank accounts. From there, Experian identifies eligible utility and cell phone payments and adds the data to the credit score, which results in an immediate update to the FICO score.
How much the additional data impacts credit scores varies from person to person. It largely depends on the credit score prior to adding Experian Boost, as well as numerous other factors. Not all mortgage companies use Experian in the pre-approval process, though most mortgage underwriters will review all three major consumer credit reports before underwriting the loan. Ultimately, it is up to the mortgage company how much weight – if any – they want to place on the expanded data collection results.
The potential for Experian Boost to help consumers falls into two categories:
- For those who do not have enough credit history to otherwise qualify for a home loan, Experian Boost may provide enough data and boost scores enough to satisfy mortgage lenders.
- For those sub-prime borrowers, who have a high enough credit score to get a mortgage, but may be subject to higher interest rates because of a lower score, the Experian Boost program may boost their scores enough to help them qualify for lower interest rates. Over the life a mortgage loan, this could result in savings in the tens of thousands of dollars.
We work with a network of highly recommended lenders, and can help you find the write mortgage lender to meet your needs. Whether you are looking to buy or sell a home in Northern Virginia, we are always here to help with all your real estate needs! If you are unsure of your home’s value or if you are thinking about buying or selling, contact Jason at 703-298-7037 or Jason@JasonAndBonnie.com.