America is the land of credit, banks have so much money they are always ready to loan you more provided you cross off on all the consideration on their checklist. Your credit score is at the very top of that checklist.
So, do you need some money? Better have as high a credit score as possible. However, in reality, the black community to a very large extent don’t get to benefit much from all these overflowing credits in America.
Black people ‘statistically’ got bad credit
The surest way to improve your credit score is by paying off your financial obligations in time. The one monthly payment most of us must pay is rent. Today, Afrikagora is going to tell you why paying your rent in time can actually help you improve your credit, and once that looks good, you know it means more opportunities for more credit.
A credit (loan) invested in the right place, could open economic opportunities for you. Opportunities such as those shared by Victor from VeUniverse.com in our previous articles here and here.
Improving your Credit Score through prompt Rent Payments
While it is true that the black community has a disproportionate number of people with bad credit, that is also the likely situation for African immigrants. So whether black or African, you are in an ending fight to bump up your credit.
These two demographics are mostly affected because they are disadvantaged when it comes to homeownership. Ironically, you can’t own a home without a good credit score, which will open for you more lines of credit with better terms, and enable you to own a home, which will stop you from paying rent.
As it works out, you are stuck on the outside of an impenetrable cycle of wealth generation. That only makes those inside more wealthier by the day and those outside more poorer by the day.
We are going to look at how people in the lower-income brackets can raise their credit score through timely rent payment. Of course, there are a lot of other factors that go into account to determine score; it is just not rent. Nonetheless, paying your rent in time sure helps the situation.
Since 2016, thanks to a bill that was passed in December 2015, there was a shift in how Americans got qualified for creditworthiness when it came to purchasing a property. The bill, dubbed ‘Credit Score Competition Act of 2015’ gave room for Fannie Mae and Freddie Mac to base their qualification on other credit scoring metrics other than Fico.
Under the Fico system, your credit score is evaluated based on your lines of credit including bank loans, mortgage, credit cards alongside the length, amount, and history of your credit line.
Looking at what is taken into consideration under the Fico system, it was near impossible for new credit applicants to get a high enough score. That is because they simply didn’t have enough credit history to generate the data used by Fico.
The new credit applicants will automatically be deemed ‘high-risk candidates,’ and either denied credit or given with very harsh terms and conditions.
Mortgage Funding automatically rejects African Americans
Under the Fannie Mae and Freddie Mac plans, the two biggest mortgage purchasers in the US, the lowest acceptable score by a candidate was a Fico score of 620. Most African Americans under the Fico system score lower than the 620 minimum.
That means blacks were systematically excluded from the mortgage funding. Yes, even the ones who have never been late on their rent payment. Simply because they did not have enough credit history to make the Fico score of over 620.
Non-Traditional Credit Report (NTCR)
The Credit Score Competition Act of 2015 brought about the Non-Traditional Credit Report (NTCR). The NTCR can be used by a mortgage applicant who does not have enough history as by Fico’s standards.
NTCR takes into account bills and payments which most individuals will manage to build up enough history to vet their creditworthiness. That includes things like payments of rent, utility, insurance premiums, cellular, and even voluntary payment into 401k and other savings.
Paying your Rent, Bills, Insurance Premiums on Time improves your Credit Score
Based on NTCR, a bigger pool of Americans are qualified for mortgage funding, including African Americans and African immigrants who recently acquired citizenship.
The use of NTCR as a basis for determining a mortgage applicant’s creditworthiness is growing among the FHA lenders. Even the big duo, Fannie Mae and Freddie Mac, are slowly warming up to the use of NTCR. Experts believe it is only a matter of time before they too are fully aboard the NTCR ship.
However, a bad Fico score cannot be overlooked simply because one has a good NTCR score. You still need to be on time with your bills and credits as per Fico in order to at least attain an acceptable credit score; as by Fico metrics.
