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Did you forget to mow your lawn? Believe it or not, it could harm your ability to get a mortgage.
Just when you thought you knew all the ins and outs of how your credit score is calculated, it all changes. Last month FICO announced a new partnership with CoreLogic to create a new FICO score for use in the mortgage industry. While there are many credit bureaus that provide scoring on Americans, your FICO score is the report most widely used for mortgages. That's because FHA and other government-backed mortgages use FICO as part of their means testing for approval. If FICO standards change, it could have a widespread effect on families looking for mortgage approval.
What Is the CoreScore?
The proposed new mortgage credit report hopes to combine traditional consumer credit information from FICO, with less traditional reporting from CoreLogic's CoreScore.
CoreLogic isn't a household name, but the company handles a great deal of information about most households. The company provides information and services to companies dealing in real estate. You might not know it, but CoreLogic could be paying your property taxes out of escrow for your bank or reporting your delinquent tax information.
The company has several ties to local governments, where they collect public information for the various products that they provide. More recently, they've started to tap into their vast information hub to create credit reporting on non-traditional credit information like assessed property values, property tax information, tax liens, alimony judgments, whether you have taken out pay day loans and rent payment information.
It's a whole new world of consumer information and it could be linked to your ability to get a mortgage. It might not seem problematic at first glance, but there are two main issues that the new scoring could create for mortgage applicants.
Your Lawn Might Be Connected to Your New FICO Score
The addition of the CoreScore to your FICO will greatly increase a bank's access to your personal finance information. The more doors that are open, the more doors that you will need to guard—even doors you didn't know existed.
It's not common knowledge, but seemingly unrelated aspects of your finances can get exposed through public information. Town ordinances and zoning are becoming increasingly restrictive in communities. There are plenty of local governments that can cite you for not mowing your lawn, leaving your garbage out on the curb overnight or owning one too many dogs. These types of local penalties may seem ridiculous and unfair, but they do have teeth. Many localities have the ability to place a lien on your property if citations remain outstanding. That means that it could get noticed by the new FICO score.
Failure to mow your lawn really could lead to a rejection on your mortgage application. The addition of the CoreScore opens the floods gates on financial information that was once unavailable to lenders.
Is the CoreScore Accurate?
The sheer volume of financial information being reported to banks means you'll need to keep your finances on a tighter leash. Unfortunately, the new FICO score may also mean more incorrectly reported information. In particular, consumers should be wary of FICO using public property information, because it is not easily and accurately traced to individuals.
Let's consider property taxes.
It can take property tax collectors months, maybe years, to change the property owner of record. That's because taxes are levied on properties and not individuals. Don't pay your property taxes and you'll be faced with a tax lien or losing your property, not a consumer collection agency. Taxing authorities know that property isn't going to skip town, so having the correct name on delinquent taxes isn't a top priority.
Are delinquent property taxes even indicative of a wayward homeowner? Most mortgagees don't pay their own property taxes, since it is common for banks to require escrow accounts. That means banks pay taxes and are likely responsible when they go unpaid. Yet you are the one who takes the credit score hit when banks make a mistake.
It is unclear at this point whether the new mortgage FICO score will become industry standard for the mortgage industry. If it does, it will mean taking more responsibility for all your financial obligations and possibly taking on the hassle of making sure local government records are up-to-date so that you are not penalized for someone else's mistake.
Article writer JP runs the money blog My Family Finances, a site dedicated to helping families make wise financial decisions. He is also an MBA and works in corporate finance.