Government-sponsored mortgage enterprises Fannie Mae and Freddie Mac have expanded their acceptance of alternative credit scoring models in the mortgage lending process. Following a limited rollout announced in April involving approximately 50 lenders, the agencies now permit all mortgage lenders to use VantageScore 4.0 in addition to the traditional FICO score when evaluating borrowers. This marks a significant shift after decades of relying exclusively on classic FICO scores for mortgage decisions.
VantageScore 4.0 differs from traditional FICO scoring by incorporating alternative financial data points not previously considered in conventional mortgage assessments, including rental payment history and utility bill payments. This inclusion of alternative data could benefit homebuyers with limited credit histories, potentially enabling qualification for mortgages or access to more favorable interest rates. According to analysis of recent mortgage disclosure data, approximately one-third of mortgage denials for primary home purchases involved applicants lacking sufficient credit history, indicating a substantial population that could benefit from the expanded scoring criteria.
The Federal Housing Administration announced separate but complementary changes, indicating it will begin insuring mortgages underwritten with both VantageScore 4.0 and FICO 10T starting January 1. FICO 10T, another alternative scoring model using comparable alternative data sources, is expected to receive approval from the Federal Housing Finance Agency in the coming months. Additionally, the regulatory agency has indicated it is considering modifications to current procedures that require lenders to obtain credit reports from all three major reporting bureaus—a practice known as tri-merge—potentially reducing this requirement to two reports or even a single report.
The availability of these alternative scores presents both opportunities and practical considerations for consumers. While VantageScore 4.0 can be accessed for free through select financial institutions and services, obtaining classic FICO and FICO 10T scores typically requires paid subscriptions. A significant limitation remains that most rental payment data does not automatically flow to credit reporting agencies, with only 13% of consumers having their rent payments reported to bureaus as of last year. Renters seeking to leverage rental payment history may need to utilize dedicated rent-reporting services, which often involve monthly fees.
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