Rental Payments May Help Blacks Build Credit

The Way credit scores are calculated have had a huge effect on the credit score of people in lower income brackets. Black people "statistically" have been at a disadvantage when it comes to Home ownership and credit acquisition, creating an environment where there are more Black tenants than home owners.

 

In 2016 there was a shift in qualifications of credit worthiness when it comes to purchasing a home. In December 2015 a bill was introduced into congress called the "Credit Score Competition Act of 2015" which essentially allows Fannie Mae and Freddie Mac to use credit scoring models other than Fico.

Currently under the Fico system your score is created based off of lines of credit from bank loans, credit cards, mortgages, along with length, history and amount of the credit line. Use of the Fico system by creditors to extend credit makes it very difficult for new credit applicants because no credit history usually equates to "a high risk candidate." When it comes to mortgages funded by Fannie Mae and Freddie Mac (the countries two largest mortgage purchasers) usually the lowest acceptable score is a Fico score of 620. Unfortunately this score excludes many African Americans who want to purchase a home, have never missed a rent payment, but don't have enough credit history to make the cut.

Thanks to the Credit Score Competition Act of 2015 a Non-Traditional Credit Report (NTCR) may be used when a mortgage applicant applies for a home loan. A NTCR takes into account bills and other payments made on a monthly or quarterly basis. These include rental payments, utilities, cellular, insurance premiums, and even voluntary payments into a savings or 401k. The use of a NTCR will qualify millions of potential home owners which do not meet the qualifications of the traditional Fico system. Many FHA lenders have already begun to use NTCR for borrowers who have little or no credit history. Fannie Mae and Freddie Mac are slowly trying to transition into using some NTCRs but currently will not substitute a NTCR for a bad Fico score with negative determining factors such as missed payments.

So if you are planning on buying a house and your credit is not so great, you might want to check into programs that have your rental behavior reported to an agency so that it could be used to help you purchase that home you have always wanted. 

 


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