New Credit Model May Open Mortgages to More Buyers

Mortgage shoppers with limited or outdated credit records may have another path to approval. Lenders can now use VantageScore 4.0, in addition to FICO, for mortgages sold to Fannie Mae and Freddie Mac. FHA also plans to apply the same pricing approach to either score type.

The newer model can work with a shorter credit record and may include rent, utility and telecommunications payments. It also draws information from all three major credit bureaus. VantageScore says its system can produce scores for 33 million more Americans than older methods. Estimates cited in the report suggest 5 million additional prospective buyers could qualify, with $1 trillion in related mortgage activity.

This is not automatic across the lending industry. Borrowers will need to locate lenders using the newer system, including VA-approved lenders for veterans. Rent and utility payments may require documentation or reporting services because those records do not automatically reach credit bureaus. Several Federal Home Loan Banks and the Veterans Administration have already started accepting the model.