MW Want the lowest mortgage rate you can get? Credit-scoring changes mean home buyers need a new strategy.
Andrew Keshner
How to make the most of the new math coming for your credit score
Getting ready to apply for a mortgage? The playbook for your credit score is getting an upgrade.
How much house can a buyer afford? People have to consider the size of their down payment, income, debts - and also their credit score.
If people can show mortgage lenders a shiny credit score and a track record of on-time bill payment, it's going to help them score a cheaper interest rate compared to a riskier borrower with dings, delays and revolving balances.
Home buyers need to upgrade their strategy thanks to a credit-scoring policy switch from Fannie Mae (FNMA), Freddie Mac (FMCC) and housing regulators announced this week.
The lenses that mortgage lenders use to look at a person's credit history are changing to incorporate rent and utility payment data. The new models also consider a person's payment and debt trends over 24 months, instead of taking a snapshot in time.
That means there are more ways for mortgage borrowers to demonstrate creditworthiness at a time when borrowing costs are elevated. At the same time, the new credit-scoring systems could also expose more flaws in a borrower's credit history.
Despite the credit-scoring changes from housing regulators, the core playbook hasn't changed for people in search of low mortgage rates, said Kimber White, president of the National Association of Mortgage Brokers. "Pay on time, keep balances low and don't open unnecessary new credit lines. That formula still wins," White said.
Yet the changes mean that "if you've been steadily paying down debt, that positive trend will now be visible and rewarded," White added. "Consistent habits over time matter more than ever."
Specifically, Fannie Mae and Freddie Mac, the two massive government-sponsored mortgage buyers, are updating the credit-score models used for the loans they'll accept from originators who lend to home buyers.
The government-sponsored entities said they will start using scores from VantageScore - a credit-scoring business owned by the three major credit-reporting companies, TransUnion (TRU), Equifax $(EFX)$ and Experian (UK:EXPN) (EXPGY). The model is called VantageScore 4.0.
Additionally, Fannie and Freddie will eventually incorporate a different credit-score model from FICO $(FICO)$. Though lenders will still have the classic FICO score to use for now, the company's FICO 10T score will be used at a future date. (FICO did not return a request for comment.)
Digging into the jargon on mortgage regulations and credit scores can be daunting. When home buyers are facing high interest rates and high listing prices, they need all the help they can get to lower costs. Here's what to know:
Rent and utility bills count, but your landlord and utility may not be reporting them
A missed rent payment can show on a credit report, but on-time payments haven't always received the same recognition in a person's score.
One key feature for VantageScore 4.0 is the ability to include timely rent payments. If someone is paying their rent regularly, it's a strong signal they will do the same with a mortgage, said Rikard Bandebo, VantageScore's chief strategy officer and chief economist.
If renters are thinking about buying a house and trying to improve their credit score, they should check if their landlord is reporting their on-time payments to credit bureaus. If the landlord is not, some states like California require them to make those reports at the tenant's request. Reporting on-time payments may boost some scores by 100 points, Bandebo noted.
If on-time utility payments are reported to the credit bureaus, Bandebo said they can also bolster a score. But could missed payments due to soaring utility bills be a drag on scores? You can take a breath: Most utility companies do not relay payment history to the credit-reporting companies, according to the Consumer Financial Protection Bureau. That changes if an unpaid bill goes to collections.
If a person arranges an installment plan, Bandebo noted that's not reflected as a delinquent payment.
A new twist on the old advice about applying for a mortgage
The standard advice used to be focusing on paying off credit cards for at least a couple months ahead of applying for a mortgage, said John Ulzheimer, a credit expert who formerly worked at Equifax and FICO. "That's still good advice," he said.
But the rise of trended data in credit scoring means people have to think about the past year or longer. At the same time, if a potential borrower already has a high score, they don't have to fret too hard, Ulzheimer said. A delinquency sits on a credit record for seven years, but a carried balance two years ago isn't going to sink a borrower's chances at a good mortgage rate.
"Someone who has a killer credit score is still going to have a killer credit score," Ulzheimer said.
There's a potential at the margins for past balances to knock a person from a preferential rate, he said. "If you are one of these obsessive people who wants to max out a score as much as you possibly can before applying for a mortgage, you are going to want a longer horizon to prepare."
The circumstances behind every score can vary, but potential borrowers shouldn't get overly worried if their debt management wasn't as crisp in the recent past as it is now, Bandebo said.
"Typically what you see is the more recent the challenge, the more impact it is," he said. On the flip side, "the more periods of good direction you have, the better you are."
Keep perspective
The credit-score upgrades at Fannie Mae and Freddie Mac are "a very big deal," William Pulte, director of the Federal Housing Finance Agency, said this week. The FHFA oversees Fannie Mae and Freddie Mac.
The shift to include VantageScore 4.0 could uncover an estimated 4.9 million people who may be eligible for a mortgage via Fannie Mae or Freddie Mac, according to Bandebo.
That doesn't mean these are 4.9 million more people who will be in the market for a home, he noted. But it means lenders and investors are poised to get a clearer picture about borrowers' repayment risks, and that leads to more precise pricing on mortgages, he said.
Ulzheimer isn't expecting a torrent of new mortgage applications as a result of the credit-scoring changes. "I think that the excitement outweighs the reality," he said.
It's a long overdue change, yet it will probably help "a very small segment of folks," said Chi Chi Wu, director of consumer reporting and data advocacy at the National Consumer Law Center.
There's a larger challenge that home buyers face this spring season and beyond. "Obviously, the real issue in this country with the homeownership rate isn't the credit score - it's that housing prices are so damn high," Wu told MarketWatch.
-Andrew Keshner
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(END) Dow Jones Newswires
April 25, 2026 10:00 ET (14:00 GMT)
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