Starting in 2025, new credit scoring models will be used by many lenders to
determine the creditworthiness of potential homebuyers. Fannie Mae and
Freddie Mac plan to mandate the adoption of the new FICO Score 10T and
VantageScore 4.0 by the end of the year. For those interested in buying a
home, these changes may impact their ability to purchase. The good news is
that these scores aim to be more inclusive and to show a fuller picture than
the old classic FICO scores did.
These new scores have been noted to have better accuracy, and consider
alternative credit data, as well as traditionally reported credit cards and car
payments. For example, VantageScore 4.0 allows borrowers to add on-time
payments for rent, utilities, and telecom bills. For those with limited debt or
who prefer to use cash, this is a big advantage when seeking credit.
The introduction of these new credit scoring models offers more opportunity
and accessibility to credit for more individuals. This is particularly true for
those with limited credit history or strong alternative credit data.
Additionally, the VantageScore 4.0 only requires one month of credit history
to generate a score, while FICO 10T still requires at least six months.
Overall, the launch of these credit scores appears to be a significant step towards
hopefully allowing access to homeownership to more Americans. By
considering alternative credit, these scores may provide lenders a truer
picture of the ability of a potential homebuyer to pay their loan and extend
credit to those previously unable to qualify.
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