The Same Mistakes Of 2008?

What was the single biggest issue with the recession of 2008? The fact that banks lent out money to people who really shouldn't have been offered those loans.

The second worst? Banks got bailed out with tax payer money and ended up pocketing nearly all of it!

Because of these rules, regulations and laws were put into place to limit the chances of this happening again. But where do we find ourselves today? In a world of mess and with that a folding back on those very laws in order to short term pump up the USA economy only to pay for it later yet again.

The government did this with stimulus checks and while it lessoned the pain during the lockdowns of Covid we are now paying for it ten fold. That's because things the government does in terms of big changes like this take around 1-2 years to unfold and show their ugly head. It's short term happiness for a long term penalty and seems like we are now doubling down on that once again for short term happiness.

What do I mean by that?

The housing market is getting a new potential rule. In a time when mortgage rates are 7% and most likely to continue to climb upwards of 9% by the end of this year alone this new law would lessen the requirements for someone to take out a loan for a house.

Normally this is done by what is called a FICO score. It's that thing that ranges from 350 - 850 and having a higher one often gets you better rates on your loans as you are seen as less risk to default on that loan to a bank. It's used for buying houses, car loans and personal loans.

Well changes are being made that will eliminate the FICO score. Yep ELIMINATE IT! Meaning no one is going to scare about that FICO score and instead it will be replaced with something else.

What is that something else you might ask?

This new system is being designed by banks and the government and will take into account other things instead of debt/credit. This is due to an increasing amount of people living without a credit score and many people being rejected for loans at a higher than expected rate mainly because those with a credit score are below that 725 number needed for an approval of a loan to buy a home.

The Current System

• 35% Is payment history. Paying your bills on time
• 30% Is amount owed your total possible debt over how much debt you actully have
• 15% Is your account age across all of your accounts
• 10% Account Types Credit cards, car loans, house loans etc
• 10% Inquires hard inquire for when you look to buy something on credit more hits the worse your score here

The New System

It's dubbed the FICO 10T and VantageScore 4.0 will account for other things. This is because over 70 million Americans currently don't have access to lines of credit for one reason or another. One of those changes will be looking at bank statements and if their balance is increasing or not along with any overdrafts.

This new system accounts for other things like utility, rental and cell phone bill payments.

The Blowout

The likely blowout of all of this most likely will not be felt until next year or even two years. As people take out massive loans in a falling housing price market and job losses a real possibility it's said that people will be spending nearly 45% of their monthly income from their job just to finance their house! That's a number that crushes the number of the 2008 housing crash and is leaving many worried of what's about to come over the next year or two.

The Positives

There's a lot of positives that come with this new system. It hits more targets and more information about that person. It removes one of the biggest issues of debt in this country and that's credit card debt. Back in the day it was thought you have to get a credit card, charge a bunch to it and pay it off to build good credit. Well that all sounds fine until you forget to make a payment or fall on hard times. You're instantly hit with a massive 15% + APR that is crushing and continues to build and build and build with no end in sight and that's where many now find themselves. The system is pretty much geared towards making you take out debt you shouldn't. The new system however stops that encouragement and instead takes other factors into consideration such as utility bills, rentals, cell phone bills (which pretty much we all have) and other such things. You know those things you pay off each month without taking on debt but for the most part still have to be paid off.

What are you thoughts on this new credit score system?

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