Two credit scoring models have been approved by the federal government that use alternative data to assess borrowers, in a move that could help millions more people get mortgages.
The Federal Housing Finance Agency has given its approval to the FICO10T and VantageScore 4.0 credit scores models for loans backed Fannie Mae or Freddie Mac. This is to promote a more inclusive and accurate approach to lending.
The key takeaway: Keeping a track of your rent, utility and cellphone payments on time could set you up for a mortgage or refinance in the near future.
Increased opportunities to get a mortgage
FHFA approved new credit scoring models that include information on rent, utility, and phone payments. Lenders of government-backed loans currently only consider applicants’ FICO (r), scores. This information is not included. Over the next few years, the new scoring models will replace FICO.
Who can Benefit?
An excellent track record of timely rent, utility, and cellphone payments could strengthen your credit profile.
- People with no scores — According to the Consumer Financial Protection Bureau, approximately 26 million Americans have no credit history.
- People with a low credit file A thin credit file is one that doesn’t have enough information (or too much recent) about your credit history to allow credit bureaus and agencies to assign you credit scores.
Reporting your rent and utility payments
Most rent payments and utility payments, such as phone, electricity, and water, don’t get reported to the major credit bureaus. They won’t appear on your credit reports. You can change this.
What can you do
- Report rent payments. Ask the landlord if they are able to report your rent to credit bureaus. You can also sign up for a third-party company, though this may require you to pay a monthly charge. MoCaFi is a mobile banking platform that allows account holders to report rent payments to Equifax or TransUnion free of charge.
- Report utility payments. Ecredable adds information from utility accounts, including water, gas, and cellphone, to your TransUnion file. The basic plan is $24.95 per year.
- Experian Boost is available to you. Boost is a free service that scans all your bank transactions to find rent, utility and cellphone payments. This information will only be added to your Experian credit record.
Helping you with the rest of your credit
Your credit and financial health will be improved by paying your bills on time, keeping your credit utilization low and only applying for credit when you really need it. These are just a few other things to consider.
- Monitor your credit scores. TransUnion, Equifax and Experian allow you to check them, but you may be charged a fee. Credit Karma, which allows you to monitor your VantageScore(r. 3.0) credit scores from Equifax and TransUnion, is a free option.
- You might consider a loan to build credit. This loan is designed to help new credit users establish credit and can also be used by those with lower credit scores to improve their repayment history. This type of loan requires you to make monthly payments before you receive loan funds. Credit Karma offers a Credit Builder plan that is free of interest and fees.
- Apply to a secured card . These cards require a cash deposit. This is collateral in case you miss a payment. The deposit is usually your credit limit.