Changes in credit reporting and what it means for homebuyers

May 12, 2023

There are some major changes set to take place in the credit reporting industry in 2023. These changes have the potential to open access to credit for millions of borrowers. They could also boost scores for some borrowers and lead to lower interest rates.

When a change is made to credit scoring models, these changes need to be vetted by the Federal Housing Finance Agency (FHFA). The FHFA oversees Fannie Mae and Freddie Mac, the agencies that provide financial backing to most mortgages offered through lenders. The changes were approved and accepted by the FHFA in late 2022 but could take a year or more to fully implement.

Here’s an outline of the changes made and how they could positively benefit borrowers.  

  • Trended data: This change allows the use of credit balances over the past 24 months so that risk might be more accurately measured. This is a change from the ‘moment in time’ view currently used on credit reports. The thought is that a 2-year picture will allow lenders to more precisely assess how a consumer has managed their accounts. This should allow for better prediction of future behavior.   

  • BNPL loans: BNPL stands for ‘Buy Now Pay Later’. These short-term, often interest free, loans have become extremely popular over the past several years especially with younger consumers. Experian became the first credit repository to announce it would begin to record these BNPL loans in 2022. TransUnion quickly followed and provides consumers a tool that will let them add these payments to their credit history.

    According to Equifax consumers with little or no credit history were able to increase their credit scores by 21 points when they added positive BNPL payments. 

  • Rental payments: The new scoring now allows for rental payment history to be included into calculations, provided the information is reported to the credit bureaus.  Experian has also developed a tool that allows consumers to self-report their rental history. 

  • Medical debt or collection: A year ago, the three credit bureaus removed the majority of paid, but lingering, medical debt from credit reports. Thereby immediately improving credit scores for millions of Americans. Additionally, they have increased the reporting of unpaid medical collections from six months to one year. This gives consumers much more time to resolve these debts before it negatively impacts their credit. At some point in the first half of 2023, the credit bureaus will also remove medical collection debt with balances less than $500 from credit reports. This is a HUGE win as we see small collections negatively impact borrowers’ ability to be approved for financing all the time. 

It will take some time to implement these changes. The FHFA expects this to be a multiyear effort. According to research by the three big credit bureaus, 37 million consumers will benefit from these changes due to the additions to their credit profiling triggering a credit score, which lenders need to evaluate credit worthiness. Additionally, 3.8 million underserved minorities should see higher credit scores, thus granting access to credit they were unable to obtain previously.

 

Learn more about how credit score impacts your homebuying experience and connect with a U.S. Bank mortgage loan officer today.

Related content

Work flexibility crucial as municipalities return to office

Why other lenders may be reaching out to your employees

What’s the difference between Fannie Mae and Freddie Mac?

Sustainability + mobility: Trends and practical considerations

Save time with mobile apps for business finances

4 benefits of independent loan agents

High-cost housing and down payment options in relocation

How institutional investors can meet demand for ESG investing

How RIAs can embrace technology to enhance personal touch

Innovative payroll solutions may help attract hourly workers

Look to your custodian in times of change

Mortgage buydowns and subsidies in today’s talent-focused relocation policies

Digital processes streamline M&A transactions

Treasury management innovations earn Model Bank awards

Overcoming the 3 key challenges of a lump sum relocation program

Tapping into indirect compensation to recruit foreign talent

A checklist for starting a mobility program review

An asset manager’s secret to saving time and money

At your service: outsourcing loan agency work

Challenging market outlook reveals the power of partnership

Crypto + Relo: Mobility industry impacts

Changes in credit reporting and what it means for homebuyers

For today's relocating home buyers, time and money are everything

Digital Onboarding helps finance firm’s clients build communities

Automating healthcare revenue cycle

What is CSDR, and how will you be affected?

Ways prepaid cards disburse government funds to the unbanked

ABL mythbusters: The truth about asset-based lending

Why Bond Issuers Should Consider a Successor Trustee

Avoiding the pitfalls of warehouse lending

Automate escheatment for accounts payable to save time and money

Time is money: Intelligent Payment Routing saves businesses both

What corporate treasurers need to know about Virtual Account Management

CFO survey: A shifting focus on ESG in business

Middle-market direct lending: Obstacles and opportunities

Managing complex transactions: what your corporate trustee should be doing

CFO report: Driving growth via new business models and technology

CFO insights: Leading the recovery for sustainable growth

Easier onboarding: What to look for in an administrator

How jumbo loans can help home buyers and your builder business

Why retail merchandise returns will be a differentiator in 2022

Technology strategies to complement your business plan

The reciprocal benefits of a custodial partnership: A case study

CRE trends

Easing complex transactions: Project finance case studies

Crack the SWIFT code for sending international wires

Webinar: CRE Digital Transformation – Balancing Digitization with cybersecurity risk

Webinar: CRE Digital Transformation – Balancing Digitization with cybersecurity risk

Best practices for optimizing the tech lifecycle

Start of disclosure content

Loan approval is subject to credit approval and program guidelines. Not all loan programs are available in all states for all loan amounts. Interest rates and program terms are subject to change without notice. Mortgage, home equity and credit products are offered by U.S. Bank National Association. Deposit products are offered by U.S. Bank National Association. Member FDIC.