Writer: Lucy Lazarony
Editor: Lillian Guevara-Castro
Reviewer: Adam West
Key Takeaways
- VantageScore 4.0 and FICO Score 10T include rent and utility payments in their mortgage scoring models.
- Adding of rent and utility payments may be positive news for potential homebuyers with thin credit histories or low-credit scores.
- Twenty-one large mortgage lenders are already using VantageScore 4.0.
The Federal Housing Administration (FHA), Fannie Mae and Freddie Mac are moving toward broader use of new credit-scoring models that consider an applicant’s rent and utility payment history.
VantageScore 4.0 is already being added to parts of the mortgage market, including Fannie Mae and Freddie Mac, while FICO Score 10T is expected to be available in coming months.
“By embracing additional predictive credit scoring models, we are taking a meaningful step toward expanding access to homeownership — particularly for creditworthy borrowers who may have been overlooked under older systems,” said Scott Turner, Secretary of the U.S. Department of Housing and Urban Development.
The FHA announced plans to allow the use of VantageScore 4.0 and FICO Score 10T alongside Classic FICO for FHA-insured mortgages, though the implementation guidance and rollout date are forthcoming. And Fannie Mae and Freddie Mac are updating their selling guides with the new credit scoring models.
“We are modernizing credit scoring with more predictive models, helping millions of Americans who responsibly pay rent qualify for mortgages. That’s fair, it’s commonsense, and it’s finally delivering the benefits of competition to homebuyers nationwide,” said William J. Pulte, Director of the Federal Housing Finance Agency.
Help for Low-Score and Thin-Credit Homebuyers
For homebuyers with a low credit score or thin credit files, these new credit scoring models could be good news. On-time rent and utility payments that are reported to one or more major credit bureaus may be considered by the newer scoring models. A positive payment history could help some applicants’ scores.
But there won’t be a lift to a credit score if a potential borrower’s rent and utility payments aren’t being reported to the major credit bureaus, Equifax, Experian and TransUnion.
“We are modernizing credit scoring with more predictive models, helping millions of Americans who responsibly pay rent qualify for mortgages.” — William J. Pulte, Director of the Federal Housing Finance Agency
Some property managers report data to credit bureaus. If yours doesn’t, some services say they can help report rent or utility payments to credit bureaus, though fees and eligibility requirements vary by the service.
With Experian Boost, up to two years of past rent payments, as well as payments for cell phones, utilities and insurance, are reported to Experian for free. Rental Kharma reports rent payments to Equifax and TransUnion and also reports utility payments for a fee.
With Kikoff, the reporting of all future rent payments is included with a Kikoff Premium or Ultimate subscription. Premium and Ultimate users also have the option to get as much as 24 months of past rent payments reported to Equifax for a one-time fee.
Lenders Gain Insight With New Credit Scoring Models
“How can you not have credit scores include a major factor in the past payment history of somebody with rent?” Pulte said during a press conference. “That’s highly predictive.”
Pulte said during the press conference that 21 large mortgage lenders are already using VantageScore 4.0 and that Freddie Mac has taken in $10 million in loans approved using VantageScore 4.0, CNBC reports.
VantageScore 4.0 and FICO Score 10T also use trended data, which is based on an applicant’s credit behavior over the past 24 months when calculating a credit score.
Different Outcomes in Competing Studies
FICO has pointed to research from actuarial firm Milliman that found FICO Score 10T more predictive for mortgage lending than VantageScore 4.0.
The analysis done for this study covered almost 20 million mortgages including Fannie Mae and Freddie Mac and FHA mortgages. A second study, also by Milliman, found that FICO Score 10T is better at evaluating the credit risk of first-time homebuyers than VantageScore 4.0.
VantageScore, which is owned by Equifax, Experian and TransUnion, has pointed to its research finding VantageScore 4.0 is more predictive than FICO Score 10T and Classic FICO. The press release also points out that VantageScore 4.0 has been in active use for more than five years by thousands of financial institutions.
The Bottom Line
Credit scoring models Vantage Score 4.0 and FICO Score 10T are considering rent and utility payments in their credit assessments of mortgage applicants. This could be great news for people with payment histories of paying their rent and utilities on time.
The only catch is those payments must be reported to the major credit bureaus. If a property manager doesn’t report rent to the credit bureaus, consider using a rent reporting service prior to applying for a home loan.
