1 in 3 Buyers Will Switch Lenders Over Credit Reporting

One in three prospective homebuyers indicated they would switch mortgage lenders if the lender exclusively utilized older credit-reporting models that do not incorporate a history of on-time rent and utility payments. This finding emerged from a study commissioned by Experian earlier this summer, highlighting a significant shift in consumer expectations regarding credit assessment. At a meeting of mortgage business leaders held on Tuesday outside of Washington, D.C., experts from major credit-scoring agencies urged the mortgage industry to adapt its practices to better reflect modern financial behaviors. The U.S. government has this year encouraged the broader adoption of newer credit scoring models, such as FICO's 10T and VantageScore 4.0. These advanced models are designed to include rental history, utility payments, and other non-traditional financial data, a departure from the long-standing preference for traditional payment histories that excluded such information. Traditional credit scores, by contrast, primarily consider payments for items like cars, credit cards, and mortgages. Leaders at a conference hosted by the Mortgage Industry Standards Maintenance Organization (MISMO), a division of the Mortgage Bankers Association focused on mortgage information and business standards, encouraged financial institutions to embrace these modernizations. Experts predict that updating credit reporting practices could lead to credit score improvements for as many as 7.7 million individuals. The limitations of older scoring models are particularly evident in light of significant changes in American earning and spending habits, including the rise of the gig economy. Susan Allen, chief product officer of Experian Housing, stated that "seeing risk more effectively is not necessarily taking on more risk." Younger generations, in their teens and twenties, often exhibit different financial profiles compared to previous generations. These profiles frequently include extensive rent payment histories, less frequent homeownership, and income derived from gig economy work, alongside limited traditional credit metrics. The proliferation of financial tools like Venmo and buy-now-pay-later services further complicates and diversifies the financial landscape, making traditional credit metrics less comprehensive. Allen emphasized this evolving reality by remarking, "It's a completely different world out there," noting that consumers with "thin traditional credit" may not be accurately represented by outdated scoring systems. The push for modernization aims to provide a more accurate and inclusive assessment of creditworthiness, better aligning with the financial realities of a diverse consumer base.