Anew policy change at mortgage giants Fannie Mae and Freddie Mac could help first-time homebuyers qualify for a mortgage if they have a track record of paying their rent on time.

Effective immediately, Fannie and Freddie will allow mortgage lenders to use VantageScore credit ratings to assess borrower creditworthiness, in addition to or instead of traditional FICO scores, Federal Housing Finance Agency Director Bill Pulte said on Tuesday.

Unlike some versions of FICO, VantageScore takes rent payment history into account, if those payments are reported to either Equifax, Experian, or TransUnion, the three major credit bureaus.

"We are expanding credit access to millions of forgotten Americans—people who live in rural areas, renters who pay their rent on time every month—and bringing down closing costs," said Pulte, who is also the chairman of Fannie and Freddie, in a social media post.

FICO and VantageScore both issue a credit score between 300 and 850 to potential borrowers, with the goal of projecting the likelihood that a person will fall behind on debt payments.

A higher score means you're less likely to miss a payment, and the highest scores can help you qualify for a lower mortgage rate.

However, the two companies have different methods for calculating scores. VantageScore can take rent payments into account and can generate a credit profile with just one month of credit history, as opposed to six for most FICO products. (FICO's latest product, FICO 10T, can also consider rent payment history.)

"This should help folks with thinner credit files get qualified for mortgages, which will add to the pool of potential homebuyers and boost the market as a whole," says Realtor.com® senior economist Joel Berner. "People who haven't taken out much debt on things like auto loans or credit cards will have the opportunity for their rental history to help them qualify for a loan."

VantageScore is also typically easier for consumers to check for free through credit monitoring services.

National Association of Realtors® Executive Vice President and Chief Advocacy Officer Shannon McGahn praised the policy change in a statement.

"This is a major step toward a more accurate and equitable mortgage underwriting process, one that considers timely rent, utility, and telecom payments as indicators of creditworthiness," she said. "These are real-world factors that show how people pay their bills and should count when determining if someone qualifies for a mortgage."

The addition of VantageScore as an option for mortgage lenders could also help improve competition in the credit score business, potentially lowering fees and reducing closing costs for consumers.

Last year, the Consumer Financial Protection Bureau announced a public inquiry into “junk fees” that increase mortgage closing costs, including credit-check fees that have soared in recent years.

“The market for credit scores has long been dominated by one company’s algorithm: the Fair Isaac Corporation, which sells the FICO score,” former CFPB Chairman Rohit Chopra said in a speech last year. “Mortgage lenders have shared that costs for credit reports and scores have increased, sometimes by 400% since 2022.”

Pulte in a social media post on Tuesday predicted that lenders who used both FICO and VantageScore "should get better pricing," arguing that "it’s just math."

A spokesperson for Fair Issac Corporation, the creator of the FICO score, in a statement said that "the safety and soundness of the system is built on the integrity of the FICO Score."

"FICO welcomes competition on a level playing field among credit score providers. We compete vigorously in every U.S. consumer credit market, and the FICO Score is freely chosen by lenders, investors, and other market participants because it is trusted as the most predictive and reliable credit score. FICO scores are the industry standard and preferred choice for evaluating creditworthiness in the mortgage process, regardless of whether the loan is conforming or non-conforming," the statement said.

Although Fannie and Freddie do not originate loans themselves, the two government-backed entities are powerful forces in the world of mortgages as major buyers of whole loans for repackaging into securities.

Home loans that meet the rules and requirements set out by Fannie and Freddie are known as "conforming" mortgages, which are the type of loans offered by nearly all lenders and the most common mortgage vehicle for homebuyers.

Editor's note: This article has been updated with additional comments from NAR and FICO.