Americans now have a new credit option to use when applying for a mortgage, and it allows them to use their rent payments as a qualifying factor.
President Donald Trump‘s administration announced this week that mortgages sold to Fannie Mae and Freddie Mac will now accept the use of VantageScore 4.0 credit scores when determining loan qualifications.
Why It Matters
By opening up the VantageScore credit rating to qualify for a mortgage, more Americans will likely be able to be approved and subsequently purchase homes than before.
The housing market has become increasingly unaffordable for the everyday American, with home prices nationwide up 0.6 percent year-over-year in May, and the median sale price set at $440,910.
Mortgage rates have also exacerbated this trend, hovering in the high six percent range.
A house’s real estate for sale sign is seen in front of a home in Arlington, Virginia, November 19, 2020.
SAUL LOEB/AFP via Getty Images
What To Know
Americans will now be able to use the VantageScore credit score to qualify for home loans, which means rent will count as a qualifying factor to be approved for a mortgage.
The VantageScore 4.0 credit score ratings will now be accepted in place of the FICO 10T model, enabling all rent and utility payments to be used in the calculation of your credit score.
“VantageScores are considered more flexible than traditional credit scores. They incorporate both financial and non-financial data—like utility and rent payments—to help establish creditworthiness, especially for individuals with limited credit history,” Kevin Thompson, the CEO of 9i Capital Group and the host of the 9innings podcast, told Newsweek. “This opens the door for more people to be seen as creditworthy in the eyes of lenders.”
Bill Pulte, director of the Federal Housing Finance Agency (FHFA), said on X that the new order “will allow for Americans to use their RENT to qualify for a mortgage.”
“Credit history will no longer just include credit cards and loans,” he wrote. “This is HUGE.”
Moving forward, the MBA said it will work with the Federal Housing Finance Agency to address the “numerous implementation questions that are necessary to realize these benefits as well as the continued conversations around credit reporting competition.
Will This Lead to a Boom In Home Buyers?
While more borrowers will be able to qualify for mortgages as a result of their VantageScore, there’s still a possibility that lenders will approach these credit ratings with caution, Thompson said.
“Even if the VantageScore appears solid, financial institutions may still view these borrowers as higher risk and compensate by charging higher interest rates,” Thompson said. “So while this is a step in the right direction, it may come at a cost—access, yes, but potentially at higher borrowing rates.”
What People Are Saying
Kevin Thompson, the CEO of 9i Capital Group and the host of the 9innings podcast, told Newsweek: “The inclusion of non-traditional data in VantageScores could be a positive shift for housing. It allows more borrowers—especially those with thin credit files—to qualify for mortgages by recognizing payments they’re already making, like rent and utilities. That could expand access to credit and increase homeownership potential.”
A spokesperson for the Mortgage Bankers Association (MBA) previously told Newsweek: “MBA has consistently advocated for increased competition in credit reporting and scoring and welcomes reforms that will lower costs for consumers. FHFA’s announcement to allow lenders to have a choice of credit score models to use when delivering loans to Fannie Mae and Freddie Mac could help to accomplish the goals of added competition in the credit score space and reduced consumer costs, if implemented correctly.”
Daryl Fairweather, chief economist for Redfin, said on X: “FHFA’s approval of VantageScore is a win for competition, as it breaks FICO’s monopoly on credit scores for conventional loans. This should lead to lower costs for lenders, but it’s unclear if those savings will reach homebuyers in the form of lower closing costs.”
What Happens Next
The details around how rental payment data will be reported and used is still unclear, but there could be long term effects when it comes to the housing market.
“This could be a huge boost for some borrowers, as the ability to make these monthly cost-of-living payments could enhance the score usually just associated with debt. At the same point, parts of the decision are still unclear, and it remains to be seen how it will impact the housing market,” Alex Beene, a financial literacy instructor for the University of Tennessee at Martin, told Newsweek.
“Obviously, the goal is to get more borrowers to qualify for a mortgage, but just how making bill payments will dramatically do so is still a work in progress.”