Credit Score Changes for Mortgage Loans

Big changes are coming to the credit scoring models used in mortgage lending, and they could impact both homebuyers and homeowners looking to refinance. These changes are set to take effect later this year, so it's essential to understand what’s coming and how it might affect you.

What's Changing?

Traditionally, mortgage lenders have used the classic FICO score to assess borrowers’ creditworthiness. The Classic FICO score typically uses data from the three major credit bureaus: Experian, TransUnion, and Equifax. Each bureau collects credit information independently, so your credit score may vary slightly depending on which bureau’s data is used.

Mortgage lenders usually pull credit reports from all three bureaus and use the middle score (the median) to assess your creditworthiness. Starting in late 2025, two new credit models will be introduced: VantageScore 4.0 and FICO Score 10T. Here’s a quick rundown of the changes:

• New Credit Models: Both VantageScore 4.0 and FICO 10T will be used by lenders instead of the classic FICO score. These newer models provide a more comprehensive view of a borrower’s credit history.
• Reduced Credit Report Requirements: Lenders will now have the option to pull two credit reports instead of three, reducing costs for borrowers and potentially leading to better competition among credit bureaus. While some lenders may still opt to pull all three reports, this shift could lower borrowing costs.

This transition is currently expected to occur in the last quarter of 2025.

Why the Change?

The goal behind this move, driven by federal housing agencies, is to:

• Increase Access to Credit: The VantageScore model was designed to include more consumers, particularly those who may have been overlooked by traditional scoring systems, such as minority and low-income groups.
• Promote Competition: By allowing lenders to pull fewer reports and use different scoring models, the aim is to increase competition among the credit bureaus, which could lead to better services for consumers.

How Does It Affect Borrowers?

For consumers, these changes should provide several benefits:

• More Inclusive Credit Scoring: VantageScore requires only one month of credit activity to generate a score, compared to six months for FICO. This means that borrowers with shorter credit histories, especially those from historically underserved groups, may benefit from a faster path to building credit.
• Lower Costs: With lenders having the option to pull only two credit reports, borrowers could see reduced costs when applying for loans.
• Better Credit Assessment: By using both FICO and VantageScore, lenders will gain a more detailed view of a borrower’s financial situation. This could improve approval chances for consumers with less traditional credit histories.

You can read the full Federal Housing Finance Agency's news release announcing these changes on the FHFA website.

What Should Borrowers Do to Prepare?

Though these changes are significant, the steps you should take to maintain a strong credit profile remain the same:

• Pay Your Bills on Time: Timely payments are key to maintaining a strong credit score.
• Keep Credit Utilization Low: Try to keep your credit usage below 30% of your available credit.
• Check Your Credit Reports: Regularly reviewing your credit reports for errors will ensure that your score is as accurate as possible.

These credit score model updates promise greater inclusivity and flexibility, offering more opportunities for homebuyers to achieve their homeownership goals. For those planning to buy a home or refinance in the coming months, these changes could be an opportunity to secure better loan terms.

Stay informed, keep your credit healthy, and always know that CapCenter's team is here to help. If you are curious about loan options or what you can qualify for, reach out to CapCenter today!

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