New Credit Score Threshold to Expand Mortgage Access, Raises Concerns of Increased risk
WASHINGTON D.C. – A shift in mortgage lending standards will soon allow some borrowers with credit scores as low as 620 to qualify for home loans, a move expected to modestly expand access to the housing market but also sparking debate over potential risks. The change, set to take effect in the coming months, lowers the previously standard 640 credit score requirement for many lenders.
While the adjustment may open doors for a small segment of prospective homebuyers, experts caution it won’t dramatically alter the current housing landscape, where mortgage rates remain elevated and home prices continue to climb.The median existing-home sales price reached $415,200 in September, according to the National Association of Realtors, a 2.1 percent increase year-over-year.Together,forecasts predict U.S. mortgage rates will likely remain around six percent for the foreseeable future, influenced by economic uncertainties and the federal deficit.
“While this change may expand the pool of eligible buyers slightly, it won’t make a major impact on today’s housing market,” said Kates.
The decision has prompted discussion about parallels to the risky lending practices that contributed to the 2007-2008 housing market crash. Experts note that a credit score of 620 carries more risk today than it did in the past, due to what some describe as “credit-score inflation,” where the same score now reflects weaker underlying creditworthiness.
“A 620 credit score today is not what it was five years ago; it’s actually worse,” one expert told Newsweek. “We have seen a kind of credit-score inflation, meaning the same number now often reflects weaker underlying credit.”
Despite these concerns, analysts emphasize that the current mortgage system incorporates significantly more safeguards than it did before the 2008 crisis. While the change introduces some marginal risk, it is not considered a systemic threat to the broader financial system. The potential impact is more likely to be felt by individual borrowers, particularly in markets already experiencing price pressure, such as Florida and the Sun Belt region.