In the past , renters who reliably made their payments on time saw little benefit from that history when trying to secure a mortgage. That era is finally headed towards the door. Freddie Mac and Fannie Mae, which back nearly 70% of mortgages in the U.S., have announced they will now factor in rent payments when evaluating mortgage applications.This shift is driven by the newly approved use of VantageScore 4.0, a more flexible and inclusive method for lenders to asses credit. The traditional FICO model currently used utilizes credit activity like credit cards, loans, and long-standing accounts and requires at least 6-months of credit history. The new VantageScore model has less emphasis on the length of credit and focuses more on trending data (like the changing of balances over time). Your credit score will now be considered when paying your rent, utility, and even your phone bills, requiring only a 1-month minimum of credit history. This is especially valuable for individuals who are responsible with money but don’t have traditional credit cards or loans, such as younger adults, immigrants, or long-term renters. Not only is VantageScore more flexible in its scoring, but it’s cheaper as well. The model is more cost effective to operate, which gives lenders the opportunity to pass those savings on to consumers. While this is expected to benefit millions of Americans, especially those in underrepresented communities, it doesn’t mean that all previously rejected borrows will qualify right away. Freddie and Fannie still remain strict in their underwriting standards. Borrowers will still need to do their part in finding the right lender and have the necessary income and assets to support a sufficient score.
