Why Haven’t Loan Officers Been Told These Facts? Getting Nontraditional Credit Reported By the NCRAs
Loan officers and lenders recognize that using Automated Underwriting Systems (AUS) simplifies the loan approval process, lowering both risk and costs.
The recent decision by HUD and the GSEs to adopt new trended data credit scoring models presents a unique opportunity for forward-thinking lenders. This advancement significantly enhances homeownership opportunities by making financing accessible to more borrowers than traditional manual underwriting methods.
By tapping into the substantial population of underbanked and credit-invisible households, lenders can not only expand their market reach but also drive financial inclusion for those who need it most. Stakeholders are overlooking the essence of this change amid all the discussions about how competition among credit model providers will reduce homeownership costs. This notion is just this side of stupid. Even if the cost of credit scores were to be halved, it would only save $15 to $30 per transaction. With the average price of a starter home over 1 million in many locations, something tells us this credit score competition won’t move the needle on homeownership affordability.
The credit model change reflects the industry’s gradual acceptance of alternative data/nontraditional credit. Banks are far ahead of the consumer mortgage industry in utilizing alternative methods to establish creditworthiness.
The new credit scoring models will incorporate alternative data to potentially enhance scoring. However, if an applicant fails to pay these accounts as agreed, their scores could be lower. It’s not uncommon to see depository statements filled with NSF (non-sufficient funds) charges. For many individuals, the last bill they pay is the electric bill, and this has become a significant issue lately. Additionally, it’s important to determine whether the prospect has a history of paying their rent or utility bills on time before going through the trouble of developing alternative data.
However, for many prospects and lenders, this credit score model could help address bigger pricing issues.
The challenge lies in getting alternative data into the three National Credit Reporting Agencies (NCRAs) databases. Once a consumer’s alternative data is added to the National Credit Reporting Agencies (NCRAs) database, lenders will be able to use the new scoring models, VantageScore 4.0 and FICO® Score 10T, to incorporate the alternative credit data into the scores. This alternative data could potentially improve the consumer’s credit score, possibly by a substantial amount. Thin-file and credit invisible applicants could see significant score improvements.
Converting Nontraditional Credit Into Higher Credit Scores Using the FICO 10T and VantageScore 4.0 Scoring Models
The process begins with getting nontraditional credit data to the National Credit Reporting Agencies (NCRA). Numerous fintech enterprises report alternative credit data to the NCRAs, but not all providers report to all three NCRAs. However, getting higher scores from two NCRAs are all that is needed. For example, when pulling a tri-merge, if a lender receives two scores, they use the lower score.
There has been a push by various stakeholders to include rent payments and other forms of nontraditional credit, such as cell phone and utility bills. Currently, there is no widely recognized or available infrastructure to transmit nontraditional credit data to the National Credit Reporting Agencies (NCRAs). Instead, the process relies on a mix of fintech providers. Typically, the consumer or payee must provide the payment data to the fintech company, which then validates and reports this data to the NCRAs.
Some Fintech providers offer retrospective rent and bill payment validation for up to 24 months. The scoring model may require a minimum account history to score, such as FICO 10 T, which requires at least six months of reporting.
Using nontraditional credit enables the lender to move from a low or no score to a qualifying score. In theory, it is possible to do this in a week.
For example, Experian, in partnership with the fintech company FinCity, offers a free feature called Experian Boost®. This tool helps identify timely payments by analyzing the consumer’s bank account where these payments were made. While some may find this approach a bit invasive, it utilizes the same technology and methods used for asset verification reports.
Other providers confirm rent payments with landlords. Consumers who do not pay their bills using a checking account may have fewer options. Some states are encouraging landlords to report rent payments to the National Credit Reporting Agencies (NCRAs) through various intermediaries, such as fintech companies.
Most of the fintech vendors report to TransUnion. Experian offers the Experian Boost®. With these two NCRAs, lenders should be able to pull a tri-merge and, by using the midscore, be ahead of the game. If Equifax doesn’t score, use the lower score.
4000.1 II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
A. Title II Insured Housing Programs Forward Mortgages
1. Origination/Processing
(3) Borrower Minimum Decision Credit Score
(a) Definition
The Minimum Decision Credit Score (MDCS) refers to the credit score
reported on the Borrower’s credit report when all reported scores are the
same. Where three scores are reported, the median score is the MDCS. Where two differing scores are reported, the MDCS is the lowest score. Where only one score is reported, that score is the MDCS.
According to VantageScore, the VA accepts 4.0.
Currently, whether lenders use the new scoring models is their choice. The original plan was for mandatory implementation. If you are a third-party originator, discuss with your lender ways to expand homeownership opportunities with the new scores.
The LOSJ does not endorse or recommend any of the following fintech companies.
BEHIND THE SCENES: AT LONG LAST, the GSEs and FHA ARE READY TO ACCEPT NEW CREDIT SCORE MODELS (kind of)
“This historic move is intended to lower costs for the American people after years of rising prices under the status quo credit score system.”
What’s all the fuss about? How do the new credit scores lower costs for consumers? And how does the new score model expand access to homeownership? Excellent questions.
The idea is that FICO currently serves as the sole provider of credit scores to Government-Sponsored Enterprises (GSEs) and HUD. By allowing lenders to choose from different scoring model providers, this change is expected to encourage competition between VantageScore, a joint venture owned by Equifax, Experian, and TransUnion, and FICO. Increased competition should help lower consumer costs, making housing more affordable. Don’t laugh, five bucks is five bucks. Thank you, Supreme Leader!
The automated underwriting systems (AUS) of GSEs are already programmed to evaluate trended credit data in order to assess a borrower’s ability to manage revolving accounts. The AUS takes into account various factors that influence its findings. For instance, a borrower who uses revolving accounts conservatively—characterized by low credit utilization or regular payoffs of their balance—is viewed as lower risk. Conversely, a borrower with high revolving credit utilization or low available credit is seen as a higher risk.
It’s important to note that lenders are not required to analyze trended credit data from credit reports as they do with credit reports. Therefore, the significant change lies in the credit score itself, and credit scores do indeed impact mortgage terms.
Preliminary analysis of the effects on credit scores for our debt-riddled homebuying base indicates that generally, the new scores will trend lower than with Classic FICO. That should make for lower mortgage costs, right? Wrong. Will the GSEs adjust LLPAs and Credit Fee buckets, maybe. But not immediately.
These new models are more advanced than traditional FICO models, as they incorporate trended data into the scoring process. Trended data analysis examines a consumer’s credit utilization over the past 24 months. For instance, within this timing window, a consumer who pays off their revolving charge accounts in full at the end of each billing cycle will receive a higher score than someone who only makes minimum payments and maintains higher utilization rates.
A key advantage of the new scoring models, FICO® Score 10 T and VantageScore® 4.0, is that they incorporate nontraditional and self-reported trade lines in their score calculations. This can significantly enhance credit scores and increase the likelihood of loan approvals through automated underwriting systems (AUS). In contrast, the Classic FICO models primarily used in mortgage lending do not take nontraditional or self-reported trade lines into account when calculating credit scores. This indicates that lenders may have the opportunity to approve more loans through AUS using the new scoring system than they could with the Classic FICO.
The Classic FICO scoring model provides a snapshot of an individual’s credit situation. As mortgage loan originators (MLOs) know, consumers with high revolving charge balances often have fewer liquid assets, suggesting they may be living beyond their means. This creates a situation in which credit card debt accumulates. The more consumer debt a person has, the fewer liquid assets they possess. With fewer assets, consumers become increasingly vulnerable to financial hardships.
Imagine two consumers with excellent payment records. However, one carries $45,000 in revolving credit card debt each month, while the other pays off their balance in full each month. The consumer without the debt will have liquid assets, whereas the consumer with the debt has little or none. Despite these differences, both consumers may receive similar credit scores because traditional scoring methods do not take trended data into account.
For instance, if a consumer had a revolving credit balance of $14,000 12 months ago but now has a balance of $29,000, this reflects a negative trend. Conversely, if another consumer had a similar balance in the past but has since decreased their debt, this indicates a positive change.
HUD Announcement
Washington, DC
Today the U.S. government is ushering in a new era of competition in our nation’s mortgage market.
In a joint announcement, Secretary Scott Turner and FHFA Director William J. Pulte announced that the Federal Housing Administration and Fannie Mae and Freddie Mac are implementing their first new credit score models for mortgages in decades. This historic move is intended to lower costs for the American people after years of rising prices under the status quo credit score system.
Secretary Scott Turner announced today that the Federal Housing Administration will permit the use of VantageScore 4.0 and FICO 10T as eligible credit scoring models for FHA-insured mortgage underwriting. “By embracing additional predictive credit scoring models, we are taking a meaningful step toward expanding access to homeownership – particularly for creditworthy borrowers who may have been overlooked under older systems,” said Secretary Scott Turner. “This exciting announcement is in service to President Trump’s promise to restore the American Dream of homeownership.”
Fannie Mae and Freddie Mac are also moving forward with VantageScore 4.0 and FICO Score 10T, updating their selling guides with the new scores and immediately accepting Vantage-scored loans from approved lenders. This step advances the full implementation of the Credit Score Competition Act of 2018 as signed by President Trump, bringing greater choice and flexibility to borrowers.
“Thanks to President Trump’s leadership, we are driving down costs across the homebuying process,” said Director Pulte. “We are modernizing credit scoring with more predictive models, helping millions of Americans who responsibly pay rent qualify for mortgages. That’s fair, it’s commonsense, and it’s finally delivering the benefits of competition to homebuyers nationwide.”
Fannie Mae Announces Credit Score Model Updates to Advance Credit Score Modernization
April 22, 2026
New credit score options reinforce competition and innovation while maintaining a measured, operationally ready approach
WASHINGTON, DC – Fannie Mae (FNMA/OTCQB) today announced upcoming updates to its Selling Guide to allow for the use of VantageScore® 4.0, effective immediately, and the future use of FICO® Score 10T credit scores for loans delivered to Fannie Mae, marking another important milestone in the ongoing credit score modernization initiative led by U.S. Federal Housing (FHFA). Additionally, publication of historical credit score data for both models is scheduled for this summer. Fannie Mae also will publish historical credit score data for loans acquired between April 2013 and September 2025 for FICO Score 10T, as well as additional data for VantageScore 4.0 between April 2023 and September 2025.
The updates are intended to help foster competition and innovation, potentially lower lending costs, and provide new insights to support a smooth transition for our industry partners. Newer credit score models also incorporate additional data that can provide a more complete view of borrower creditworthiness, such as on‑time rent payment history and trended credit data, with the potential to accurately score more consumers.
“Credit score model modernization is an important step toward a more competitive, innovative, and resilient housing finance system,” said Jake Williamson, Executive Vice President and Head of Single-Family. “By incorporating newer models with more predictive power, we can support sustainable access to homeownership and keep safety, soundness, and operational readiness at the center.”
Fannie Mae is initially implementing these changes through a limited rollout to approved lenders to help ensure operational readiness before broader availability as the market moves forward with full implementation of modernized credit scoring and credit reporting.
Lenders participating in the limited rollout may now use VantageScore 4.0 from each credit bureau through a tri‑merge credit report for use in originating and delivering new loans to Fannie Mae. Lenders not participating in the limited rollout must continue to use Classic FICO® scores from each bureau through a tri‑merge credit report until VantageScore 4.0 is made broadly available. Lenders interested in using VantageScore 4.0 may submit their interest online or contact their Fannie Mae representative.
Together, these updates represent another step forward in the multi‑year effort to modernize credit scoring, strengthen risk management, and expand the tools available for lenders to responsibly evaluate borrower creditworthiness.
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