Beginning in June, Fannie Mae, which is one of the biggest government-sponsored buyers of mortgages, will now favor borrowers making efforts to pay down their credit cards when it comes to buying home loans. This means those just paying the monthly minimums may simply not be enough. The company’s counterpart, Freddie Mac, is expected to follow suit.
This trended data will include amount of payments made and total amounts remaining on the balance, and will only involve credit card accounts. Other consumer debt such as student loans and mortgage loans, will not be a part of that. The credit data will let lenders know a potential buyer’s minimum payment due, the actual amount paid, and the balance each month.
TransUnion and Equifax will look to credit card data going back as far as the last 2 years. This will begin in June 2016.
The borrowers that pay off their credit cards at the end of every month are 60% less likely be delinquent on their mortgage compared to borrowers who only make the minimum payments- even if they are on time, according to Fannie Mae.
“For example, if two borrowers have $10,000 in credit card debt, have equal credit scores and are making their payments on time, Fannie Mae’s automated loan approval software will now favor the borrower (a so-called “transactor”) who had $20,000 in credit card debt six months ago and paid it down by half, over the borrower (the so-called “revolver’) who had $3,000 in debt six months ago, but charged up another $7,000 while making only on-time minimum payments.”
Fannie Mae also claims that those who make the minimal payment are not necessarily considered riskier, but the borrower who makes more than just the minimal payment is a better one. They will not be penalizing those who can’t pay down their bills.
Knowing how your credit scores are affected by your spending history is an important start to understanding your credit to be able to qualify for a loan. Please contact our home mortgage specialists to learn more about how your credit decisions affect your credit scores.