Your credit score and credit history play a big role when you are buying a home and applying for a mortgage. Historically, FICO scores were only accepted by Fannie Mae and Freddie Mac. It was recently announced that Fannie Mae and Freddie Mac will be required to:

• Transition from a tri-merge credit report (all 3 credit bureaus) to a bi-merge (any 2 credit bureaus)
• Start accepting VantageScore 4.0 in addition to FICO.

This sounds overwhelming, but let’s break it down for what it means for someone looking to build their credit when buying a home.

FICO

FICO stands for Fair Isaac Corporation, the company that developed the original credit scoring model. Your FICO score is typically a snapshot of your current credit profile. There are many different versions of FICO but mortgage lenders use a version that calculates scores based on five key factors:

• Payment History
• Amounts Owed
• Length of Credit History
• Credit Mix
• New Credit Inquiries

FICO is the industry standard for mortgage underwriting.

VantageScore 4.0

It is an alternative to FICO that was created by the three credit bureaus (Equifax, Experian, and TransUnion). Instead of a snapshot of your current credit data, it incorporates trended credit data. This is an inclusive model that will allow more consumers with a limited credit history to have a score. VantageScore 4.0 also includes rent, utility payments, and other nontraditional credit lines to assess a score.

What Does This Mean for Homebuyers and Lenders?

More homebuyers could qualify for a mortgage, especially if they are first-time buyers and those with little to no credit history. It is a more modern scoring model, that would include rent and utility payments, which could possibly help increase established credit profiles.

Credit scores matter when it comes to saving money on a mortgage loan, since people with higher credit scores are typically rewarded with lower interest rates.

Tips for Improving Your Credit Score Before Buying a Home

Get a free copy of your credit report
Visit annualcreditreport.com to review your credit reports and ensure all information is accurate.

Report rent payments
Find out if your landlord/management company has a program in place to track and report your monthly payments to all three credit bureaus.

Pay on time
Continue making payments on time and don’t skip or miss any payments.

If you have any questions or are looking for a free consultation to get started with your homebuying journey, you can meet with one of our loan officers.