Fannie Mae and Freddie Mac, government-sponsored enterprises that support the housing market by acquiring mortgages from lenders, now allow the use of more than one credit score model when evaluating homebuyers’ loan applications.
Bill Pulte, Federal Housing Finance Agency director, announced the change in a series of social media posts on Tuesday. Pulte said that Freddie Mac, more formally known as the Federal Home Loan Mortgage Corp., and Fannie Mae, the Federal National Mortgage Association, will enable lenders to use the latest version of the credit-scoring system, VantageScore, and that it would create competition, lowering costs for consumers.
Pulte also emphasized that VantageScore takes homebuyers’ previous rental payments into account when calculating credit scores.
“We are expanding credit access to millions of forgotten Americans — people who live in rural areas, renters who pay their rent on time every month — and bringing down closing costs,” he said in one post.
FICO, a company whose credit score model has been dominant in the business in recent years, noted in a statement that the most recent version of its tool also includes rental data.
Major credit-reporting bureaus created VantageScore
The three major credit-reporting bureaus — Experian, Equifax and TransUnion — created VantageScore as an alternative to FICO. Congress passed a law in 2018 directing Fannie and Freddie to consider other credit score models besides FICO, but the government later gave the agencies until this year to prepare for the shift. Both models score people’s credit in a range from 300 at the low end to 850 for the least risky borrower.
Since 2023, the Federal Housing Administration has required lenders to report rental payment history on applications for its loans, according to an Urban Institute report issued earlier this year. The report cited a study that found FHA mortgage applicants with a record of paying their rent on time tend to have lower credit scores than those who applied without a rental history.
The Mortgage Bankers Association reacted cautiously to Pulte’s announcement. Allowing lenders to have a choice of credit score models “could help to accomplish the goals of added competition in the credit score space and reduced consumer costs, if implemented correctly,” the group said in a statement.
The nonprofit Community Home Lenders of America, representing small and midsize lenders, sent Pulte a letter in May that faulted FICO for raising prices for its product. The group urged the government to “hasten the arrival of a viable VantageScore platform.”