Mortgage lending practices are undergoing significant changes as government-sponsored enterprises Fannie Mae and Freddie Mac have expanded the credit scoring models available to lenders. Previously, lenders could only use classic FICO scores when making lending decisions on mortgages sold to these entities. The enterprises now permit the use of VantageScore 4.0, developed jointly by the three major credit bureaus Equifax, Experian, and TransUnion. This expansion followed a limited rollout that began in April involving approximately 50 mortgage lenders.
VantageScore 4.0 incorporates alternative data sources not considered by traditional FICO scoring models, including rent and utility payment histories. This inclusion of rental payment data could benefit homebuyers with minimal credit histories, as consistent rent payments may improve their creditworthiness assessment. According to Zillow’s analysis of recent Home Mortgage Disclosure Act data, approximately one-third of mortgage denials for primary home purchases with conventional loans resulted from insufficient credit history. The Federal Housing Administration is set to begin insuring mortgages underwritten with both VantageScore 4.0 and FICO 10T starting on January 1.
Beyond score diversification, the Federal Housing Finance Agency is considering additional modifications to the mortgage application process. The agency is evaluating whether to reduce the number of credit reports required from the current three—a process known as tri-merge—to two reports, known as bi-merge, or potentially even a single report. While such changes could reduce costs associated with credit report pulls, which have increased substantially, experts note potential drawbacks. Since credit reports vary between bureaus, using fewer reports could result in lenders missing critical information about applicants.
Currently, accessing alternative credit scores presents challenges for consumers planning ahead. While VantageScore 4.0 is available free through Synchrony Bank accounts, classic FICO scores require paid subscription services ranging from $29.95 to $39.95 monthly. Additionally, rental payment reporting remains limited, with only 13% of consumers having rent payments reported to credit agencies as of last year. Renters interested in reporting rent history may need to use dedicated rent-reporting services, which typically charge monthly fees of approximately $10, though some property managers offer participation at no cost.
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