Between mortgage rates exceeding 6%, median home prices north of $400,000 nationally, and 3% inflation eroding earned income, it’s a challenging time for U.S. renters aspiring to become first-time homeowners.
Another sometimes overlooked challenge for certain renters is a lack of positive credit history, as on-time rental payments have historically been excluded from a prospective homebuyer’s credit profile.
A new analysis released Wednesday by VantageScore suggests that nearly 4 million renters in the U.S. could see their credit score pass the 620 threshold if positive rent reporting data were incorporated into their file, making them eligible for agency-backed fixed-rate mortgages under the guidelines of Fannie Mae and Freddie Mac.
“Positive rental payments are highly predictive and allow VantageScore 4.0 to measure a borrower’s true ability to meet mortgage debt obligations,” says Andrada Pacheco, chief data scientist at VantageScore, in a press release announcing the credit scoring company’s white paper.
Pacheco adds: “This comprehensive research study confirms that potential homeowners with positive, on-time rental payment histories will benefit significantly from incorporating rental data into their credit reports.”
VantageScore 4.0 is a credit scoring model that was approved by the Federal Housing Finance Agency (FHFA) in July for loans delivered to Fannie and Freddie. In announcing the move, FHFA Director Bill Pulte referenced the VantageScore model’s incorporation of rent payment data and claimed it would expand credit access to “millions of forgotten Americans.”
The counterargument to using rental history to help determine mortgageability is that it could increase the risk exposure of Fannie and Freddie, which collectively support around 70% of the U.S. mortgage market, according to the National Association of Realtors.
In a July opinion piece, The Wall Street Journal’s editorial board cautioned that “the big risk is that mortgage lenders will rely on VantageScore’s ratings to qualify marginal borrowers and make riskier loans.”
Will Lansing, the CEO of FICO — the primary competitor of VantageScore in the mortgage credit scoring space — responded to the Journal’s piece with a letter to the editor that claimed, “The use of a score with less rigorous credit criteria than FICO’s would put the safety and soundness of the $12 trillion U.S. mortgage market at risk.”
The VantageScore analysis released this week seeks to rebut that argument.
“A frequent critique of alternative data is that broader mortgage access may come at the expense of higher mortgage default rates,” the white paper states. “This research showcases the opposite effect. Adding timely rent payment to credit files allows lenders to capture 11% more defaults in the riskiest score ranges, with an overall predictive lift of 3.7%.”
The VantageScore study was based on an analysis of more than 600,000 renters in the U.S., with data provided by Esusu, a tech platform that reports rent payments to the three major credit bureaus — Equifax, Experian and TransUnion. Those credit agencies jointly own VantageScore, which operates as an independent entity.
The white paper argues that since negative rental data is often already present in consumer credit files when landlords refer late payments to collection agencies, paying the rent on time should also be counted toward a person’s credit score.
“Positive‐only rental reporting is a powerful innovation that enhances predictive performance while broadening access to credit,” the analysis concludes.
