Rick Bisson In late May, the Wall Street Journal reported that credit scores for U.S. consumers hit a record high. Additionally, the number of individuals in the riskiest borrower’s pool fell to a record low. Mix these favorable highs and record lows with 1. Upcoming July changes in the way credit scores are calculated; and 2. A robust economy fanned by anticipated interest rate hikes, and the sum total is another feather in the cap for a solid year of home sales in 2017.

The approximate range of a “good” credit score is 700 to 749. The average credit score reached 700 nationwide in April 2017, thus putting Americans on the edge of hitting the “good” credit score for the first time ever. This, according to Fair Isaac Corp, a data analytics company whose FICO score is a major benchmark of consumer credit risk.

April’s nationwide average of 700 is the highest average since FICO began tracking such data in 2005. Fair Isaac reports that the share of consumers with scores below 600 – considered to be the riskiest – hit a record low of about 40 million, or 20 percent of U.S. consumers who have FICO scores. That is down from a 25.5 percent peak in 2010.

Key components behind these improved credit scores are the decreasing number of foreclosures and bankruptcies. According to British multinational banking and financial services giant, Barclays PLC, more than 6 million U.S. consumers will have personal bankruptcies disappear within the next five years from their reports.
Foreclosure statistics peaked in 2009 at 2.1 million, according to ATTOM Data Solutions. Foreclosures totaled nearly 1.8 million in 2010. In 2016, the number of foreclosures in the U.S. was slightly under one million.

Mortgage foreclosures stay on credit reports for up to seven years, dating back to the missed payment that resulted in the foreclosure. Personal bankruptcies are more complicated and can stay on credit reports for seven to 10 years.

In July 2017, a change in the way credit scores are calculated by the nation’s three largest credit reporting agencies means almost 12 million people are likely to see their scores push at, or above, 700. The change at the three credit reporting bureaus – Equifax, Experian and TransUnion – will take effect as part of the National Consumer Assistance Plan to ensure that consumer identifications in the data are accurate and current, said the Consumer Data Industry Association, a trade association for the companies.

July’s change will eliminate many long-overdue debts and unpaid taxes currently showing up as black marks on credit scores. In the case of unpaid debts that have become subject to a court order, many such judgments will no longer appear in people’s credit histories. The fact that the bureaus are making these changes suggests that such judgments are not useful indicators of someone’s creditworthiness, Liz Weston, a financial planner and columnist at NerdWallet said.

A good credit score opens the door for borrowers to get a lower mortgage rate and improve their chances of qualifying for a home loan. “Higher scores lead to more available credit,” says Cris deRitis, senior director in the economics group at Moody’s Analytics. “We’d see more activity in terms of loan approvals and credit-card approvals, more spending, and that would have a ripple effect across the economy, increasing aggregate demand for goods and services.”

The simulating effect of these higher credit scores alongside the urgency created by rising interest rates will put more buyers in the market. If you are looking to buy or invest, beat the rush. If you are planning to sell, it may be the best time to do so. Begin the process today by talking with a trusted Realtor and local lender.

This column is produced by Rick Bisson and his family, who own Bisson Real Estate with Keller Williams Realty of Midcoast and Sugarloaf.

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