Fannie Mae recently announced changes being implemented early next year that can help a specific class of home buyers, deepening the pool of buyers for real estate investors. Fannie is currently working with FICO to make the Major FICO Changeschanges in credit scoring and lenders should be online with the updates by mid-2016 and the new guidelines will help those with very little credit available to them as well as the other end of the spectrum, helping the so-called “super prime” borrower. It’s an interesting twist and one that is truly a common sense adjustment. What are the changes?

FICO credit scores assign weight to five different categories. Payment history, account balances, types of credit, length of credit history and recent inquiries for credit. The first two categories make up the bulk of the three digit credit score that ranges from 300 to 850. Payment history and account balances make up nearly two-thirds of the entire score. In the account balances section, borrowers are given high marks for keeping a loan balance at approximately one-third of available credit. For someone with a $10,000 credit line, a $3,000 continuous balance would contribute to an improving score.

The algorithms over time have shown that such a balance vs. credit line shows a responsible borrowing history. Without a balance, how could the score calculate good credit? This has been somewhat of a head-scratcher for those who charge something on a credit card then pay off the balance entirely when the statement comes in. In this instance, there would be no one-third balance but paying off the temporary credit all at once is in fact a very responsible trait and should be rewarded. But so far it’s not and next year that will change. It’s a common sense adjustment to credit scores and one that was sort of hard to explain to borrowers who pay off their balances each month.