New scoring models could make it easier to buy a home

A couple review their finances together in the kitchen and smile while using a smartphone to read about the new credit scoring models for mortgages.Image: A couple review their finances together in the kitchen and smile while using a smartphone to read about the new credit scoring models for mortgages.
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In a move that could allow millions more people to qualify for mortgages, the federal government has approved two credit-scoring models that use alternative data to evaluate borrowers.

By giving a green light to the FICO 10T and VantageScore 4.0 credit score models for loans backed by Fannie Mae and Freddie Mac, the Federal Housing Finance Agency is aiming to promote a more accurate and inclusive approach to lending.

Key takeaway: Establishing a record of on-time rent, utility and cellphone payments could help set you up to get a mortgage or refinancing in the not-too-distant future.

Expanding opportunities to qualify for a mortgage

The new credit-scoring models approved by the FHFA will include information about rent, utility and phone payments. Currently, lenders of government-backed loans only look at applicants’ classic FICO® scores, which don’t include such info. The new scoring models will roll out and replace classic FICO over the next several years.

Who can benefit?

A track record of on-time rent, utility and cellphone payments could help strengthen the credit profiles of …

  • People without scores — About 26 million people in the U.S. have no credit record, according to the Consumer Financial Protection Bureau.
  • People with a thin credit fileA thin credit file means there’s not enough info (or not enough recent info) in your credit history for the credit bureaus to give you credit scores. 

Getting your rent and utility payments reported

Most payments for rent and utilities, like phone, electricity and water, aren’t reported to the three major credit bureaus and won’t show up on your credit reports. But you can take action to change that.

What you can do

  • Report your rent payments. Ask your landlord if they can report your rent to the credit bureaus. If that’s not an option, you can sign up with a third-party company — though you may have to pay a monthly fee. MoCaFi, a mobile banking platform, allows account holders to report their rent payments to Equifax and TransUnion for free.
  • Report payments to utilities. ECredable adds payment info from utility accounts — including gas, power, water and cellphone — to your TransUnion file. Its basic plan costs $24.95 a year.
  • Sign up for Experian Boost. Boost offers a free service that scans your banking transactions for rent, cellphone and utility payments. The information will be added only to your Experian credit file.

Helping the rest of your credit

Paying bills on time, keeping your credit utilization low, and applying for credit only when you need it will help your financial and credit health. Here are some other tips to think about.

  • Keep an eye on your credit scores. Equifax, Experian and TransUnion allow you to check your credit scores, though you might be charged a fee. If you’re looking for a free option, you can use Credit Karma to check your credit reports and monitor your VantageScore® 3.0 credit scores from TransUnion and Equifax.
  • Consider a credit-builder loan. These loans are designed to help people new to credit establish credit scores and can be used by people with lower scores to improve their repayment histories. With this type of loan, you make payments before receiving loan funds. You might also consider Credit Karma’s Credit Builder plan, which involves no interest or fees.
  • Apply for a secured credit card. These credit cards require a cash deposit that serves as collateral if you miss a payment. The deposit typically serves as your credit limit.

About the author: Brad Hanson is a senior editor at Credit Karma. His 30 years of experience in print and digital media includes work for the Los Angeles Times-Washington Post News Service, Trucks.com and Polyvore. Most recently before… Read more.