Credit expert warns borrowers about the 'American drain' as new mortgage scoring models take effect
For millions of "invisible" Americans who have paid rent on time for years but lacked a traditional credit score, the door to the American Dream just swung wide open — but one expert warns not to trip on the threshold.
Following a landmark announcement from HUD and the FHFA to accept VantageScore 4.0 and FICO Score 10T, the mortgage industry is bracing for a surge of new applicants. Micah Smith, a leading credit repair influencer, says that while the inclusion of rent and utilities is a landmark shift, borrowers must be wary of the "American drain."
"People who were invisible in the system — no cards, no loans, no score — can now potentially show up with a real number," Smith told Fox News Digital, while also cautioning that the new models are more rigorous than many realize. "People say getting a home is the American Dream. I call it the American drain when you don't do it properly."
The acceptance of VantageScore 4.0 represents the first major change to mortgage credit requirements in over three decades, and stems from the 2018 Credit Score Competition Act signed by President Donald Trump during his first administration.
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Following last week’s announcement, Smith said many of her clients are "freaking out in a good way and a bad way."
"The narrative the media has been spinning has people all over the place. That is simply people not understanding what is coming down the pipeline and why," she said. "Everything being put into place right now is to help more people get into homes and to update a system that has not been updated in over 30 years. FICO has been in place since 1989."
"The Credit Score Competition Act… set something significant in motion. Look at how long it’s taken. It’s now 2026 and it’s finally being implemented," Smith added. "This was never about destroying FICO. This is about making sure FICO does not monopolize the credit scoring market. This is about updating an antiquated system."
A key benefit highlighted by FHFA Director Bill Pulte is the ability to account for rent payments, aiming to help creditworthy Americans who may not have traditional credit card debt but who have a perfect history of paying their bills.
"Rent and utilities now count — when reported," Smith said. "If your clients' landlord reports to the bureaus, those years of on-time payments now feed the score… But here's the flip side nobody’s talking about: If your rent is being reported, a late payment potentially can hurt you, too. Reporting cuts both ways. Don't let clients assume this is all upside."
Smith also warned that large student loan repayments, auto loans or personal loans can still drag down your credit score and mortgage eligibility, despite the new scoring models.
"That balance piece is real… High balance equals high score pressure under this model. That’s the nuance people need to hear," she said.
While a borrower cannot choose which scoring models a lender uses, Smith predicts banks will "probably" lean toward pulling VantageScore 4.0 because FICO traditionally charges $9.99 per credit report pull and VantageScore costs 99 cents.
"To me, this is starting to look like a race to the bottom," Smith said, "where VantageScore potentially ends up monopolizing the very market it claimed to open up. Lending as a whole is a multitrillion-dollar industry, and people are in more debt than they have ever been. My concern is this: giving more people access to mortgages who didn’t previously understand credit means they’re probably still coming in at a pretty subpar credit score."
However, this does not raise any recession-level concerns for Smith.
"I do not see a repeat of 2008, 2009. Banks now have skin in the game. Back then, there was no real repercussion for lenders selling bad loans off to the secondary market. That guardrail now exists. We are not going to see a crash in that sense," Smith said.
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"But here's what I do worry about: more people going into debt unnecessarily because they still don't understand the credit system," she continued. "Remember, those who understand interest earn it; those that don’t pay it."
"Credit is not your identity — but it is your financial reputation. And right now, more eyes are on it than ever before. Use this moment to get it right."