The Definitive Guide to Buying Your First Home

What the FICO credit score changes mean for first-time homebuyers

Twenty/20

Low mortgage rates have experts predicting an uptick in homebuying this year. But with changes to the FICO credit scoring model expected to start taking effect in a few months, prospective buyers might wonder if they'll qualify for those lower rates.

FICO credit scores, along with some other factors, are used by most lenders to help determine a buyer's mortgage interest rate. A higher score means a lower rate, which can save you thousands of dollars over the life of your home loan.

If you're in the market for a new home, then you'll want to pay attention to FICO's recent changes. Your payment history and debt levels, particularly credit card debt and account balances over the past year, will be scrutinized more carefully under FICO 10.

The tweaks to FICO's model are meant to give a more "accurate" credit score to lenders, which in turn is beneficial for consumers, Mat Ishbia, president and CEO of United Wholesale Mortgage, tells CNBC Make It.

"A lot of times your credit score has such a significant impact on your interest rate or fees," says Ishbia. "Some of the higher credit score borrowers will get a better score."

'Every payment matters'

A more accurate score also gives all consumers a better idea of what they can actually afford when it comes to buying a house, he says, because lenders will be more realistic.

Those planning to buy in the near term should be conscious of their credit habits right now, he says, especially because the new model takes into account your credit habits over a longer time frame than previous models. Consistency is key.

"If you want to buy a house you want to present yourself in the best possible way," he says. "Every single payment matters. There is no short cut."

That said, many people applying for mortgages won't be affected all. Fannie Mae and Freddie Mac, which buy most of the mortgages in the U.S., use older FICO models when backing loans, and those models don't evaluate debt in the same way that FICO 10 will. You can read more about that here.

According to Ishbia, there's one other important area where FICO 10 can make a difference: refinancing. If you bought a house in the last year or two, when interest rates were higher, and you've been making your mortgage payments on time every month, your score could get a boost under this new credit scoring model. And that means you might be able to refinance at a lower rate.

If you're interested in refinancing, Ishbia recommends finding a local mortgage broker and asking them about your options.

Above all, continue to pay all of your bills on time and keep your credit utilization low, especially if you plan to buy a house soon. Those factors matter far more than the small tweaks to FICO 10.

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