First, it helps to know the basics about those all-important three-digit numbers, which are used to make many financial decisions about you. They are based on information in your credit reports issued by the big three credit bureaus: Equifax, Experian, and TransUnion. Those reports contain details about how much debt you owe, what kinds of loans and credit you have and how long you’ve had them, and how well you’ve managed it all—for instance, by paying your bills on time.
Lenders use these reports and scores, along with other financial information, like your income and assets, to determine how likely you are to repay a loan, such as a mortgage.
But it’s more complicated still. I learned that each of us has not a single credit score but at least two dozen different ones, generated primarily by two companies, FICO and VantageScore. (FICO is used by 90 percent of lenders.) The most widely used FICO score is the FICO 8: different versions of it are used in decisions about credit cards and auto lending.
But to apply for a standard mortgage loan backed by the federal government, lenders currently rely on scores known as FICO 2, 4, and 5. These are compiled together into a mortgage report. These scores are a snapshot of your current credit circumstances along with historical data, and may penalize you more for one-off late payments of 30 days or more, according to Experian. (That’s what happened to me. My mother was suddenly hospitalized, and while I was with her, I missed a payment on a small bank loan, which eventually sank my score. I also had high credit utilization—more on that below.)
The new scoring models coming in 2025 from the Federal Housing Finance Agency (FHFA) will require lenders to use FICO 10T and VantageScore 4.0. These will use historical credit history covering a longer period and, importantly, will also factor in payments for rent, telecom, and utilities.
“The new models bring improved accuracy and a more inclusive approach to evaluating borrowers,” the FHFA said when their approval was announced.
Indeed, scores that include rent payments could help millions more qualify for mortgage loans. For example, 15 percent of Black Americans who were first-time-buyer mortgage applicants but were denied a loan could be approved if their on-time rental payments over 12 months were taken into consideration, according to research from the Urban Institute. For Hispanics, that figure is even higher at 21 percent.
Other benefits of the two new scores, FICO 10T and VantageScore 4: Neither will penalize you for bills that had gone into collections but were paid off, in the way older FICO scores do. And both reduce the impact of unpaid medical debt, according to the National Consumer Law Center, which evaluates changes in federal policies for consumers. The nonprofit said doing this will “greatly less[en] the harmful effects of these items on consumers’ creditworthiness.”