The National Association of Realtors wants the almighty Fico score to be revised in light of the ongoing mortgage crisis.
Over the past few years, banks and mortgage lenders have slashed home equity lines of credit as home values have plummeted across the nation.
“When a credit card issuer reduces a consumer’s line of credit or a mortgage lender reduces a consumer’s home equity line of credit (HELOC), there may be an effect on the consumer’s FICO score,” the company said in a credit policy release.
And because 30 percent of the Fico’s score determination is based on credit utilization, using a higher percentage of the available line of credit will deem the borrower a greater credit risk, and thus lower their credit score.
NAR highlighted a Fico study covering April to October 2009, which revealed that 14 percent of consumers experienced a reduction in their lines of credit, though only about a third had their credit lines reduced because of a “risk trigger.”
The group has now urged “Fico to amend its formulas to avoid harming consumers whose utilization rates increase because their available lines of credit is reduced without a risk trigger related to the particular consumer.”
The Fico study found credit scores stayed within 20 points of the prior score, but NAR warned that in today’s tight mortgage underwriting environment, even a single point can mean the difference between qualifying for a mortgage or not.
That includes FHA loans, which now have a minimum credit score and higher credit score requirements for those looking to put just 3.5 percent down on a new home.