FICO & Mortgages: Rent History Matters More Than Plastic

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Modernization of credit scores should bring in more borrowers

The Fannie Mae and Freddie Mac regulator, FHFA, has an ongoing credit score modernization initiative. Credit scoring models used by Fannie Mae and Freddie Mac are changing for the first time in decades, introducing more predictive and inclusive models to replace the Classic FICO model that has been the sole standard. FICO is a company (originally Fair Isaac Corporation) that created the most widely used consumer credit scoring models in the U.S. When people say “my credit score” in a lending context, they usually mean a FICO Score, a three‑digit number that summarizes the risk a borrower will miss payments or default.

I’ve been meaning to address this credit model change coming from FHFA for the past month, but I have been hesitant because of all the questionable ideas coming from the FHFA recently, which have been quite poor, including:

Allowing Fannie Mae and Freddie Mac to back 50‑year mortgages to reduce monthly payments and stretch affordability will not work.
Refocus Fannie and Freddie on broad middle‑class homeownership rather than narrower quota‑style mandates from the prior administration, which is political gibberish, not a plan.
Fannie and Freddie rolling back a set of equitable housing initiatives, including teams and guidance focused on minority- and underserved-lending.
Have blamed affordability problems on underbuilding and stressed that “we must build more houses” without a specific plan.
Initially, fast‑tracking the GSE exit from conservatorship would reduce housing affordability and still expose the taxpayer to downside risk.
Barring large Wall Street investors from buying single‑family homes, which account for only about 1 percent of the market, is a misdirection stunt to show Main Street that FHFA is fighting Wall Street.

I think modernizing credit scores makes sense, but, of course, the devil is always in the details.

Summary by Perplexity.AI

As of April 2026, lenders can deliver mortgage loans using either the Classic FICO model or VantageScore 4.0, introducing competition in credit scoring for conventional mortgages. The irony of this coming from FHFA should not be lost on anyone who follows the mortgage business. Freddie Mac was introduced as a competitor to Fannie Mae but has instead become a sibling that follows Fannie Mae’s lead.

VantageScore is a consumer credit scoring system developed two decades ago as a joint venture by the three major credit bureaus, Equifax, Experian and TransUnion, to provide a more consistent and predictive alternative to traditional credit scoring models.

The original FICO model, introduced in 1989, is a credit scoring system that converts your credit history into a three-digit score (300-850) that predicts your likelihood of repaying borrowed money on time. The higher the score, the greater the access to a mortgage. The problem with the original FICO is that it gave no credit for someone with a long history of rent payments, an important metric for someone transitioning from the rental to the purchase market. Especially since first-time buyers currently make up about 21 percent of U.S. homebuyers, the lowest share in data going back to 1981.

Depending on who you talk to, it is estimated that anywhere from 5 to 10 million new borrowers could gain access to the mortgage market, with lenders potentially originating as many as 2.7 million mortgages and generating up to $1 trillion in annual loan volume. Another estimate suggested that approximately 5 million new prospective buyers could qualify for homeownership, with $1 trillion in new mortgage activity anticipated.

A notable cost and score difference

The key difference with new credit score models such as VantageScore 4.0 and FICO Score 10T is that they include additional data sources, including rent payment history and trended credit data. The latter tracks your credit behavior over time, typically 24 months, rather than providing just a single snapshot. It shows patterns like whether you consistently pay more than the minimum on credit cards, carry balances month to month or are paying down debt versus accumulating it. Supposedly, they more accurately assess credit risk and provide a more inclusive evaluation of borrowers who may have been overlooked under older systems.

Research from the Urban Institute found that VantageScore 4.0 scores are, on average, higher than Classic FICO scores, especially for refinancing, investor properties and second homes. Both models effectively distinguish between high-risk and low-risk borrowers, though VantageScore 4.0 is supposed to be more effective at identifying high-risk borrowers from among those with the lowest credit scores.

FICO traditionally charges $9.99 per credit report pull compared to VantageScore’s 99 cents. Combined with higher average credit scores, the cost differential may greatly favor the VantageScore model.

Housing industry executives have warned that if lenders consistently choose the higher of two available scores, it could increase overall risk in the GSE portfolios and prompt FHFA to reset loan-level price adjustments, potentially raising costs for all borrowers. With VantageScore significantly cheaper and scoring higher, I’d say it is going to crush FICO over time. I have no idea whether that will be good or bad for mortgage lending in the long run, but introducing new credit scoring makes a lot more people nervous at first.

Of course there is a downside

Expanding credit access through modernized scoring could inject millions of additional buyers into a market already constrained by a severe supply shortage. Research confirms that credit expansions increase home prices, particularly in markets with inelastic housing supply. When local markets cannot respond by building more homes or enticing more homeowners to list, the additional demand from newly qualified borrowers will translate directly into upward price pressure rather than increased homeownership volume.

However, baked into this demand-side solution must be the assumption that there will be a supply-side solution at the same time. I don’t know what a realistic supply-side solution could be at the moment. Building more housing will help, but it is much too slow and small in scale to make a difference.

Final thoughts

FHFA’s move to modern credit scoring could introduce competition and expand consumer access to mortgages by capturing rent and trended credit data, bringing millions of new borrowers into the market. It could lower origination costs and especially benefit first-time buyers, but it also creates incentives for lenders to favor higher scores, which may increase system risk.

Ultimately, broader credit access increases demand in an already imbalanced housing market, but credit modernization makes sense even though it doesn’t address affordability today, something that FHFA seems quite good at.

The actual final thought — Without this systemic credit score improvement, we could just live with the integrity of mediocracy, adoring a two-star experience, and maintain the energy not to improve anything.

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