What Happens Next: Empowering Borrowers in the Mortgage Lending Process

Highlights: 

• By embracing advanced credit-scoring models like VantageScore 4.0 and incorporating alternative data (like rent and utilities), lenders can enhance their underwriting process, gain richer data insights, and more accurately assess borrower risk.

• Using alternative data enables approval for a wider pool of creditworthy consumers, including "thin-file" borrowers, which expands market access for the lender and provides a competitive edge in the evolving mortgage industry.

Buying a home can be both exciting and overwhelming, especially for consumers trying to understand how credit scores affect their chances of mortgage approval. As a lender, you play a vital role in helping borrowers feel more confident during the mortgage lending journey. By educating them on how credit works and utilizing advanced credit‑scoring models like VantageScore 4.0, along with the power of alternative data, you can not only improve their experience but also streamline your own underwriting process.

Here’s what you — and your borrowers — need to know about credit scores, how they influence homeownership opportunities, and how VantageScore 4.0 and alternative data are changing the lending landscape.

Why Are Credit Scores Important in the Homebuying Process?

A credit score is typically a three‑digit number that estimates a person’s likelihood to repay their financial obligations. Often ranging from 300 to 850, the higher the score, the better the credit profile. Mortgage lenders use credit scores to assess risk and determine loan eligibility and pricing. In fact, there are industry‑specific versions of credit scores, designed specifically for mortgage lending, that focus on behaviors most predictive of repayment risk in the home loan space.

In the mortgage industry, a tri-merge credit report is commonly used. This report contains a consumer’s credit information from the three nationwide consumer reporting agencies: Equifax®, Experian®, and TransUnion®. Because a mortgage represents the largest loan most people ever apply for, this single credit report merges data from all three credit reports into a comprehensive source of data for mortgage lenders. 

Additionally, the Equifax Mortgage Merged Credit Report™, available in a tri-merge format, includes trended data. Trended data provides historical insight (24 months) of a consumer’s balances, scheduled payments, and actual payments for each tradeline when available. This view provides additional insight into a borrower’s credit management behaviors.

What Makes Up a Credit Score?

Understanding the components of a credit score can empower borrowers to make smarter financial decisions. Credit scores are generally made up of six main categories:

• Payment history – Whether bills are paid on time

• Credit utilization – Ratio of used credit to available credit

• Credit age and mix – Types of credit used (e.g., credit cards, auto loans) and how long credit accounts have been active

• Debt amount – How much debt is currently owed

• Recent credit behavior – Recent credit inquiries or accounts

• Available credit – How much accessible credit that is not currently in use

For mortgage lenders, some of the most important factors are payment history and debt amount, which best indicate whether a borrower is likely to meet their future mortgage obligations.

The Growing Role of Alternative Data in Mortgage Lending

Alternative data refers to information used to assess credit risk that is not traditionally included in a credit file, such as rent payments and utilities (electricity, phone, internet). 

Why Alternative Data Matters:

• Expands credit access: There are many creditworthy consumers that don’t have extensive traditional credit histories. Alternative data helps capture their on-time payments, boosting their credit profile.

• Improves risk assessment: Consistent payments on rent and utilities demonstrate reliability and financial discipline, which reduces lender risk.

• Reduces bias and inequality: Alternative data can help lenders evaluate creditworthiness for consumers who may be seen as “credit invisible” or “thin-file” borrowers.

• Speeds up approval: Incorporating alternative data can provide more confidence during underwriting, reducing delays and last-minute surprises.

For many potential homeowners, including first-time and young homebuyers, who might not have extensive credit card or loan histories, alternative data can be the difference between approval and denial.

Bonus Tip for Lenders

Use undisclosed debt monitoring tools to get real‑time alerts when new debts appear in a borrower’s profile. These tools help keep loan files on track and prevent surprises during closing.

Create a Better Mortgage Experience With Modern Credit Scoring and Alternative Data

By partnering with Equifax and embracing advanced scoring models like VantageScore 4.0 alongside alternative data sources, you can empower borrowers with the knowledge and tools they need to achieve homeownership. Our mortgage solutions are designed to help you:

• Make smarter lending decisions

• Monitor borrower credit changes in real time

• Simplify and speed up the mortgage process

What VantageScore 4.0 and Alternative Data Mean for Your Lending Business

• More inclusive access, enabling approval of borrowers who might previously have been excluded due to thin or nontraditional credit

• Lower cost per score, unlocking cost‑efficient scoring for lenders

• Competitive edge, staying ahead of regulatory and industry shifts encouraging broader credit data use

• Better risk insight, thanks to richer data and trend analysis

Learn More

Visit the Equifax Mortgage & Housing Solutions page to explore how VantageScore 4.0 and alternative data can improve your mortgage lending experience.

Want to dive deeper? Find out about the power of VantageScore 4.0 for lenders as well as how alternative data gives you a competitive advantage in mortgage lending.