As part of Fannie Mae's loan quality initiatives, consumers could see their credit reports pulled and scores recalculated a second time just before closing. The idea is to close the credit reporting gap between the date the initial credit reports were pulled and the date of the actual closing, which could be well over a month. Fannie wants to know if you've taken on any new debt, which wasn't disclosed on the first set of credit reports. New debt can change your debt to income ratio so that it becomes unacceptable.
Fannie Mae would also likely take into account any adverse changes to the credit reports and FICO scores caused by new inquiries, new accounts or new debt. And, don’t think it’s just new accounts they’re looking for. If you’ve charged a large purchase on your existing credit card, that’s also going to cause alarms to go off.
The good news is that any credit card debt that has been paid off within the past month would likely be reflected on your credit reports and taken into account in your scores, which could actually lead to higher scores the second time around. Now, whether or not your loan terms would be improved thanks to the second set of data is yet to be determined. It’s certainly much easier to just kill a deal because of degradation in your credit than it is to sweeten the deal because of an improvement.
One thing is for certain, the credit bureaus and FICO should be very pleased with this initiative. This likely means more credit reports and scores would be purchased, twice as many as in the past. And FICO and credit bureau revenue is largely a “units x price = revenue” model. This will certainly increase the units variable.
John Ulzheimer – Credit scoring and credit reporting expert and author, John is the President of Consumer Education for Credit.com. Formerly with Equifax and Fair Isaac, John shares his unique insight of the inner workings of credit scoring models and the credit reporting industry on CreditBloggers.com.