How Recent Changes to Credit Scoring Could Make Qualifying for a Mortgage Easier for More Buyers

If your recent mortgage application was rejected because your credit file is too thin or otherwise didn’t align with traditional credit scoring, now may be the time to reapply—this time with lenders using a new scoring model. According to some estimates, millions of potential borrowers may now be eligible when they weren’t before.

That’s because mortgage lenders now have the option to use VantageScore 4.0, a more inclusive credit scoring model, alongside the traditional FICO score for loans sold to Fannie Mae and Freddie Mac, which account for the majority of U.S. mortgages.

“The enlargement of the credit requirement will lead to more first-time buyers coming on to the market,” said NAR Chief Economist Lawrence Yun. “This is great news for financially responsible people in America.”

Indeed, this change reportedly means 5 million new prospective buyers could qualify for homeownership, with an estimated $1 trillion in new mortgage activity anticipated as a result. However, keep in mind this key detail: This is a "lender choice" system, meaning not all lenders will adopt VantageScore 4.0 immediately. Although loans sold to Fannie Mae and Freddie Mac set the standard for the industry, you'll still need to be proactive about finding lenders who use it, for now.

What's actually changing for borrowers and lenders

For decades, mortgage loans delivered to Fannie Mae and Freddie Mac required credit scores from a single model—classic FICO. Now, the Federal Housing Finance Agency is giving lenders more options. 

"Ultimately, it gives lenders a choice: FICO or VantageScore 4.0," explains Omer Reiner, a real estate agent and president of FL Cash Home Buyers. "FICO has been used to determine creditworthiness since 1989. Over time, it became clear that FICO's formula did not accurately show the creditworthiness of many applicants, who were rejected as loan candidates."

VantageScore 4.0 incorporates alternative data sources, including rent payments, utility bills, and telecommunications payments.

"VantageScore doesn't require a lengthy credit history and uses things like payments for rent and utilities to be included in the mix for loan determination," says Reiner. "That opens up homeownership to a much larger pool of people because now, lenders will have more accurate data to decide who gets a loan."

It also eliminates the requirement for recent credit activity, and it removes the 6-month credit file age requirement.

"While FICO scores consider tradelines with a minimum age of 6 months and at least one account reporting in the last six months, VantageScores can use data with just one month of history and one account reported in the last 24 months," explains Naeem Siddiqi, a senior risk adviser at data and AI provider SAS.

The result: VantageScore says this model can generate credit scores for 33 million more Americans than traditional models. 

Figuring out if you qualify now

Adoption of VantageScore 4.0 will vary across the industry, at least for now, so there is no blanket statement of qualification for potential borrowers. That said, certain groups are more likely to be approved for a loan if they apply through a lender that uses this new model. 

For example, young people with a limited credit history that hasn’t led to a robust FICO score are now in a better position.

"For those with infrequent credit use, thin files, or very new files, VantageScores can offer an advantage by providing a score," notes Siddiqi.

This means that people who are financially responsible—who pay their rent, cellphone, utilities, and other bills regularly but have had limited data to prove it—will now get a score instead of being rated negatively. 

Alternatively, maybe you have a long credit history, but haven’t used credit in a long time. Now, VantageScore 4.0 will recognize that your years of responsible credit use and current bill-paying behavior demonstrate you're a reliable borrower.

In some cases, you may have good or excellent credit with just one of the main credit bureaus, such as Experian. VantageScore's tribureau approach means it compiles data from all three major credit bureaus, while FICO scores are specific to each bureau.

"This means that VantageScores use more comprehensive data, while your FICO score may be lower at bureaus where you don't have as much history," says Siddiqi.

In all cases here, if you feel that you are in a better position to obtain a mortgage than before, you need to find a lender who has adopted VantageScore 4.0. The Veterans Administration and several Federal Home Loan Banks have already begun accepting it.

How to position yourself for success

There are a few things that potential borrowers can do to take advantage of this new lending outlook. 

When shopping for a mortgage, ask lenders directly: "Do you accept VantageScore 4.0 for loans sold to Fannie Mae and Freddie Mac?"

If you're a veteran, start with VA-approved lenders. Don't assume all lenders have adopted it—you may need to contact several.

You will also need to start building your alternative credit file, which can involve some of your own legwork unless you plan accordingly. 

"Credit bureaus don't get automatic reports on rent or utility payments," Reiner says. "If you want to use VantageScore, you will have to track all of those payments to have the information included in your financial files. That can be a lot of work, and it's easy to lose track of documents. So your best bet is to pay by credit card or hire any of the third-party companies that track those payments for you."

Several services can track and report rent payments to credit bureaus. If you've been renting from the same landlord for years, ask them for written verification. Ensure your utility and telecommunications providers are reporting your payments, and check your credit report to verify this data is appearing.

Finally, be sure to understand where you stand under both models. Get your Classic FICO score through your bank or credit card issuer. Many services also provide VantageScore. Understanding your position helps you gauge whether it's worth specifically seeking lenders using VantageScore 4.0.

The basics of borrowing still matter

A better and more holistic credit score may make a mortgage more attainable, but you still need the rest of the financial package. Income and employment verification requirements haven't changed. Lenders still calculate your debt-to-income ratio, and you'll still need a down payment.

What VantageScore 4.0 changes is who can be scored and how certain types of payment behavior are weighted. It expands access by recognizing more people as creditworthy, but it doesn't lower the bar for what makes someone a qualified borrower.

The bottom line: If you've been told you don't qualify for a mortgage due to limited credit history, this change creates a real opportunity. But seizing that opportunity requires action on your part—finding the right lender, documenting your payment history, and making your case. The door to homeownership is opening wider, but you’ve still got to be the one to walk through it.