Credit scoring is becoming more than an underwriting decision. It could soon become another reason borrowers shop lenders.
One-third of consumers said they would actively seek another mortgage lender if they learned their current lender relied exclusively on older credit-scoring models that do not incorporate broader payment histories, according to new research released Tuesday by Experian.
The findings suggest the mortgage industry’s transition toward newer scores is beginning to reach consumers, potentially turning what has largely been an operational and regulatory issue into a competitive one for lenders and loan originators.
Forty-one percent of consumers said they are already aware that mortgage lenders are transitioning to models capable of considering information such as rental and utility payments. More than half, or 52%, said they would be more interested in pursuing homeownership if lenders considered additional positive payment history when evaluating their applications.
The effect appears strongest among the next generation of prospective homebuyers.
Nearly two-thirds, or 62%, of adult Gen Z consumers said they know mortgage lenders are gaining access to newer credit-scoring models. Three-quarters, or 76%, said the model a lender uses would influence whether they stayed with that lender or considered another.
That could matter as more younger consumers enter the purchase market. Experian found that 48% of adult Gen Z consumers expect to be in a position to purchase a home within the next four years.
“We’ve long advocated for the use of expanded data, including things like rent and utility payments, to help increase access to homeownership,” said Michele Bodda, president of Experian Housing, Verifications Solutions and Employer Services. “We’ve invested heavily in these areas and this research shows consumers, and younger borrowers in particular, want to be recognized for their complete financial picture.”
Credit Scores Enter The Sales Conversation
For loan originators, the research points to a new borrower question: Which credit-scoring model does your lender use, and could another model produce a different result?
Borrowers increasingly know that lenders may have access to more than one scoring option. That awareness could affect lead conversion and retention, particularly among younger consumers, renters, and borrowers with limited traditional credit histories.
An originator who can explain the available models, the data they consider, and the loan programs for which they are accepted may have an advantage over one who treats the credit score as an unexplained number produced at the beginning of the application.
The findings arrive as credit-score competition moves rapidly from federal policy into lender operations.
VantageScore 4.0 appeared in approximately 30% of TransUnion’s mortgage credit pulls as of the second quarter, up from less than 5% three months earlier. FICO, meanwhile, said more than 70 lenders had enrolled to use FICO Score 10T.
VantageScore has also said the 30 largest U.S. mortgage originators now use VantageScore 4.0, although implementation and availability can vary by lender, channel, loan program, and investor.
A Broader View Of Borrower Credit
VantageScore 4.0 uses trended credit data and can consider certain rental, utility, and telecommunications payment information when that data is available in a consumer’s credit file. Those features can help score some consumers who have limited histories under older mortgage-scoring models.
Experian said it has invested heavily in gathering expanded payment data. The company said it maintains more than 50 million lease records and has incorporated positive rental-payment histories into consumer credit reports.
However, newer scores do not automatically capture every rent or utility payment. The information must be reported, available in the borrower’s credit file, and eligible for use by the scoring model. The presence of expanded data also does not guarantee a higher score, better pricing, or mortgage approval.
Experian pointed to a VantageScore-promoted study estimating that VantageScore 4.0 could identify nearly 5 million additional mortgage-ready consumers compared with legacy mortgage scores, representing approximately $1 trillion in potential originations.
The estimate reflects potential eligibility rather than completed mortgage originations, and the scoring models remain the subject of an increasingly competitive industry debate. FICO has promoted separate research finding that FICO Score 10T performs better in predicting mortgage defaults.
Competition Moves From Policy To Practice
The Federal Housing Finance Agency opened the door to greater credit-score competition by allowing VantageScore 4.0 for eligible loans sold to Fannie Mae and Freddie Mac. The government-sponsored enterprises have also released data to help the market evaluate FICO Score 10T, which is expected to become another option within the modernized framework.
Classic FICO remains available, meaning lenders are entering a multi-model environment rather than moving through a simple industrywide replacement of one score with another.
Experian is also positioned to benefit commercially from greater VantageScore adoption. The credit bureau recently introduced 99-cent VantageScore 4.0 pricing for mortgage originations and offers lenders access to the score at no additional charge when they purchase a FICO score.
That price competition has intensified as lenders confront the broader cost of obtaining mortgage credit reports. Cutting the price of an individual score may offer only limited relief because tri-merge credit reports, reseller charges, and related verification services account for much of the total expense.
Experian’s research measures what consumers say they would do, not documented instances of borrowers switching lenders over a credit score. The findings indicate that consumers are beginning to recognize something mortgage professionals have long understood: The same borrower may not receive the same result from every scoring model or lending channel.
Applicants may not yet understand every difference among Classic FICO, FICO Score 10T, and VantageScore 4.0. But more of them appear to know that another lender could evaluate their financial history differently.
