Credit scoring change could help millions buy homes

Ten million people, including many in communities of color, who haven't been able to buy homes, could qualify for mortgages due to a change in credit scoring.

Currently, most lenders use FICO credit scores to determine whether someone is approved for a home mortgage.  

That's been a challenge for people with no to little credit history, which is about 53 million people, often in lower-income, Black and Brown communities.

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"Many families rely on cash and don’t understand how to use credit in the wealth-building process.  They don’t have established accounts. They don’t understand income ratios and how to best manage that," said Eric Goodie, Vice President of the Houston Area Urban League.

That has prevented many people in underserved communities from buying homes, despite making on-time rent, utility, and cell phone payments that went unreported.

"How could you not give credit to someone who’s been paying the rent on time for years?  I know it’s not a mortgage, but it’s a monthly payment that they’re paying," said Paul Oster, founder of credit repair firm Better Qualified.

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So in 2017, Congress passed the Credit Score Competition Act to fix that. Now the federal government has approved two credit score models, the VantageScore 4.0 and the FICO 10T to be used for loans backed by Fannie Mae and Freddie Mac, which guarantee most mortgages in the U.S.  VantageScore 4.0 and FICO 10T will include rent, utility, and telecom payments.

"The software are already in place to have utility bills, cell phone bills, any of your subscriptions that you're paying a monthly obligation, are going to automatically be included in that VantageScore model," said Oster.

VantageScore estimates that 10.7 million people, including four million minorities, could qualify for home loans.

"Homeownership in Black and Brown communities is the one asset that allows them to build wealth and generational wealth where they have something they can potentially pass on to their children," said Goodie.  


Homebuyers looking for help can reach out to the Houston Area Urban League, which is a HUD certified housing counseling agency.