Are Lenders Placing Too Much Importance On Credit Scores?

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Are Lenders Placing Too Much Importance On Credit Scores?

Jul 13, 2023 | News | 0 comments

A recent survey by Formfree reveals that many Americans have no idea about their credit score and have given up on homeownership due to it. Only 25% of the 2,000 respondents believe their credit score accurately reflects their financial status, and just 50% think it should be considered for home loan eligibility.

Brent Chandler, the CEO of Formfree, emphasizes that these findings serve as a wake-up call for mortgage lenders. He suggests that they should reevaluate their assessment of loan applicants’ repayment capacity and consider factors beyond traditional credit scores, such as overall cash flow. Chandler advocates for a more inclusive approach that benefits both consumers and lenders.

The survey findings underscore the demand for a clearer and more competitive home financing system, where lenders strive to provide the most favorable terms. Only 28% of consumers perceive traditional credit scoring models as transparent, while 40% express a desire for a more open process. The study also shows that a significant number of individuals have given up on the idea of owning a home, as only 50% of non-homeowners express confidence in their ability to afford one in the future.

Among the survey respondents, 40% identified “insufficient credit scores” as one of the primary obstacles for the average American in achieving homeownership. This ranked just below “difficulty qualifying for a mortgage loan” (42%) and “insufficient savings for a down payment” (43%). Brent Chandler, CEO of Formfree, argues that credit scores, given their significance, fail to consider enough relevant information. He highlights that credit bureaus rarely receive comprehensive payment history reports from landlords or utility companies, which can provide a more holistic view of consumers’ financial behavior.

In numerous cities across the United States, the average monthly rent surpasses the average mortgage payment. Despite this, a mere 24% of renters are receiving credit for effectively handling their housing expenses. This absence of data results in an unfair evaluation of individuals’ financial management abilities and diminishes the reliability of credit assessments when solely relying on surface-level analysis without delving into comprehensive cash-flow analytics.