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The world continues to get more complicated for millions of Americans trying to make a better life for themselves. The Fair Isaac Corporation — known to most consumers as the company responsible for their FICO score, which influences everything from their car insurance rates to whether they’ll be approved for a new apartment — is introducing changes to its formula. According to The New York Times, “Consumers in good financial standing should see their scores bounce a bit higher. But millions of people already in financial distress may experience a fall — meaning they’ll have more trouble getting loans or will pay more for them.”
If someone has an asset worth $500,000 and a reliable income, why should their FICO score in isolation disqualify them? We must be smarter about how we qualify people for and deliver their assets. We can never can have a repeat of the credit crisis caused by lending to people who can’t afford to pay the loan, but we can appropriately serve the people who can. Doing so will afford Americans a better life, more affordability and a more robust economy for the middle class and beyond.
My business is focused on home owners, and I’ve seen how FICO has been a disqualifying catalyst in the last 10 years and created a low velocity of movement. We can do a lot better for American people — and furthermore, why is it The Fair Issac Corporation that is deciding whether middle-class Americans should be allowed to buy homes?
There are so many situations where someone could and should be qualified for an apartment or home loan with a low FICO score. What if they had a medical bill that they paid over other bills for a short period? What if they had a brief setback but now have a solid income and no mortgage? What if they have a complicated tax structure and defer payments in their personal life to pay the business for a short period? We need to address this issue because not looking at the whole picture judges people on one thing rather than their complete financial background. That isn’t fair and constrains our country. The public deserves solutions and approaches that look at their entire picture.
The good news is that there are companies and models emerging that enable us to look beyond FICO’s qualification system to help renters and buyers. There are also smarter companies underwriting in such a way that can replace FICO’s outlook. I hope in this election year we see politicians on both sides support solutions to these problems to help people enjoy their homes.
I also believe some sort of tax write-off for rental payments should be considered. This would give the middle class a boost whether they rent or own (or both). It would be a boon to the middle class if, between a certain income bracket, a percentage of their rental payments were tax-deductable. This would provide a more affordable life, more money to spend in the economy and something the middle class deserves.
If you work your whole life to build hope equity, you deserve to enjoy your time, money and home. There should be a more thoughtful approach than relying on FICO. There is too much talk about we can’t do and we need to focus on solving problems, not making more. I, for one, will not rest until I am part of the solution for my fellow home owners.