Understanding the Shift to New Credit Score Models
For years, getting a mortgage has relied on a snapshot view of your credit. Lenders looked at your score on a specific day, focusing on factors like your current debt and payment history. But big changes are coming. The Federal Housing Finance Agency (FHFA) has approved the use of two new credit scoring models for mortgages backed by Fannie Mae and Freddie Mac: FICO 10T and VantageScore 4.0. These models don't just look at a snapshot; they watch a movie of your financial behavior, introducing a concept called 'trended data' that could fundamentally change your path to homeownership.
What is 'Trended Data' and Why It Matters for Mortgages
Trended data is the most significant change in the new scoring models. Instead of just seeing that you paid your credit card bill, lenders will now see how much you paid. They will analyze up to 24 months of your payment history to identify patterns in your behavior.
This matters because it distinguishes between two types of borrowers:
- 'Transactors': People who use their credit cards for convenience and pay the balance in full each month.
- 'Revolvers': People who carry a balance from one month to the next, paying only the minimum or a small portion of the total debt.
Under old models, a person with a $5,000 balance who paid the $100 minimum on time was viewed similarly to a person with a $5,000 balance who paid it off completely, as long as their credit utilization ratio was acceptable on the day the report was pulled.
With trended data, the distinction is clear. Lenders can see the person paying in full is actively managing and eliminating debt, which is a powerful indicator of lower risk. The person making minimum payments, while still paying on time, is seen as carrying more risk because their debt isn't decreasing.
Example:
- Borrower A has a $10,000 credit limit and a $4,000 balance. They pay the $80 minimum payment each month. Their balance stays around $4,000.
- Borrower B also has a $10,000 limit and a $4,000 balance. They make a $500 payment each month. Their balance trend is consistently downward.
Under FICO 10T and VantageScore 4.0, Borrower B will be viewed much more favorably and will likely have a higher score, even if both borrowers have the same on-time payment history and initial credit utilization.
Will Your Credit Score Go Up or Down in 2025?
There is no single answer; the impact of the new models is entirely based on your personal financial habits.
Your score is likely to increase if you:
- Regularly pay your credit card balances in full.
- Consistently pay more than the minimum payment on installment loans and credit cards.
- Show a clear pattern of reducing your overall debt over time.
Your score is at risk of decreasing if you:
- Frequently make only the minimum payments on your credit cards.
- Carry high balances from month to month, even if your utilization is below the 30% threshold.
- Have recently taken on significant new debt, showing an upward trend in your balances.
The goal of these new models is to provide a more predictive picture of borrower risk. Those who demonstrate responsible debt management and reduction will be rewarded.
How Rental Payment History Will Be Included
For the first time in conventional mortgage lending, your history of paying rent can now be a positive factor in your credit score. VantageScore 4.0, in particular, is designed to incorporate rental payment data, a move intended to help 'credit invisible' consumers or those with thin credit files build a score sufficient for a mortgage.
This is not automatic. For your rental history to be included, your landlord or property management company must report your payments to the credit bureaus. This is often done through third-party rent-reporting services. If you have a strong history of on-time rental payments, it's worth investigating if your landlord uses such a service or would be willing to. This can provide a significant boost by demonstrating a consistent ability to make a large, recurring monthly payment, which is a core behavior mortgage lenders want to see. The data, information, or policy mentioned here may vary over time.
A New Look at Credit Card Balances
Trended data revolutionizes how lenders view your credit card debt. The old focus was primarily on the credit utilization ratio, which is your total balance divided by your total credit limit. The common advice was to keep this ratio below 30%.
While utilization still matters, the new models place heavy emphasis on the payment trend. A borrower with a 40% utilization ratio who is aggressively paying down their balance could be scored higher than a borrower with a 25% utilization ratio whose balance has been stagnant for a year. The key takeaway is that demonstrating a commitment to becoming debt-free is now a quantifiable metric in your credit score. Lenders want to see a downward trajectory in your balances, proving you are a low-risk borrower who manages credit responsibly.
Outdated Credit Rules of Thumb
Some long-standing credit advice is becoming less relevant with the rollout of FICO 10T and VantageScore 4.0. Here are a few 'rules' that are now officially outdated:
Old Rule: 'Just make all your payments on time.'
- New Reality: On-time payments are still critical, but they are the bare minimum. Now, the amount you pay and the trend of your balances are equally important. Paying only the minimum on a large balance is a negative signal.
Old Rule: 'As long as my utilization is under 30%, I'm fine.'
- New Reality: A low utilization ratio is good, but a high balance that never shrinks is a red flag. Lenders prefer to see you actively paying down what you owe, regardless of the ratio.
Old Rule: 'Small credit card balances don't really matter.'
- New Reality: The new models analyze patterns across all accounts. Even small 'nuisance' balances that you carry from month to month contribute to a profile of a 'revolver' rather than a 'transactor'.
How to Optimize Your Credit for the New Scoring Models
Getting your credit profile ready for these changes doesn't require a complete overhaul, just a strategic shift in focus.
Here are actionable steps to take:
- Pay More Than the Minimum: On every single debt account, aim to pay more than the minimum due. This creates a positive payment trend that the new models will reward.
- Focus on Principal Reduction: Shift your mindset from 'making a payment' to 'reducing the balance'. Create a plan to systematically pay down your highest-interest debts first.
- Become a Transactor: If possible, start paying your credit card balances in full each month. This is the strongest positive signal you can send under the new models.
- Ask About Rent Reporting: Talk to your landlord about reporting your on-time rent payments to the credit bureaus. This can add a powerful new data point to your file.
- Review Your Trends: Pull your credit reports and look at them through the eyes of a lender. Do your balances show a downward trend over the last 12-24 months? If not, start making changes now.
When Will Mortgage Lenders Adopt These New Scores?
The FHFA has directed Fannie Mae and Freddie Mac to begin the process of implementation. However, this is a massive technological and procedural shift for the entire mortgage industry. In response to industry feedback, the FHFA has delayed the original implementation timeline. While a new mandatory use date has not yet been set, the transition is not expected to occur before 2025. The data, information, or policy mentioned here may vary over time. This gives you a crucial window of time to adjust your financial habits and optimize your credit profile to align with what the new models value most.
With these credit scoring changes on the horizon, understanding your financial standing is more important than ever. If you're ready to take the next step towards homeownership and see how you can qualify under the new models, apply now to get a clear picture of your options.
Author Bio
David Ghazaryan is the expert mortgage strategist and founder behind iQRATE Mortgages. With a mission to fund home loans that traditional banks won't touch, David specializes in helping clients with unique financial situations, including those recovering from foreclosure or bankruptcy. He expertly crafts smart, strategic, and stress-free mortgages by leveraging a vast network of over 100 lenders to secure competitive rates for investors and homebuyers alike. Praised for exceptional customer service, David has helped hundreds of families with a 97% satisfaction rate, guiding them to the mortgage they deserve.
References
FHFA - Transition to New Credit Score Models
