In FICO We Trust: Why Don’t Mortgage Lenders Use VantageScore?

In FICO We Trust: Why Don’t Mortgage Lenders Use VantageScore?

Man holding out a mortgage contract

mortgage contract

In the Beehive State, credit scores are synonymous with FICO (short for Fair Isaac Corporation). The company develops the credit scoring systems the vast majority of lenders in the state rely on to assess the creditworthiness of consumers.

If you are planning to borrow money to buy one of the new-build homes in St. George, Utah, or any other hot real estate markets, having high FICO scores can make you irresistible in the eyes of mortgage lenders.

For decades, FICO has had the monopoly over the credit scoring business, but it is no longer the only game in town. For years, VantageScore (developed by VantageScore Solutions) has been trying to put a dent in the market leader’s popularity.

Its third iteration, which was rolled out in 2013, is considered a success. According to research, VantageScore 3.0 provided six billion credit scores to facilitate lending decisions from July 2016 to June 2017.

Now that VantageScore 4.0 is available, will FICO lose ground in the mortgage lending space? Probably not. Below are the reasons why VantageScore may not dethrone its top rival soon.

It Scores the Unscoreable

One of the unique things about VantageScore 4.0 is its hopes to give thin-file consumers a better chance to obtain favorable credit options. It provides a score to any consumer who has at least one account with a month of payment history reported to a credit bureau within the past 24 months. On the contrary, FICO scorecards require at least six months’ worth of information reported to credit-reporting agencies.

The importance of the latest version of VantageScore’s scoring model places on trended data is a game-changer for millions of consumers in America. Suddenly, more borrowers can have credit scores they can use to apply for mortgages.

What may be a blessing to borrowers may be a curse to VantageScore. Knowing that trended data is part of the equation, mortgage lenders may find it risky to judge customers based on VantageScore scores. To avert the danger of loaning to somewhat untested payers, many lenders today stick with FICO.

home loan on keyboard

It Does Not Move the Needle in Mortgage Sales

FICO claims that the additional credit scores VantageScore generates does not necessarily translate to more customers. The market leader said that just a tiny fraction of unscorable consumers want to take out a mortgage. And the few who wish to borrow funds to purchase a property are likely will not qualify.

Of course, FICO might be saying this to destroy its main rival before it gets bigger. Right now, there is little evidence to support or debunk the company’s criticisms toward VantageScore credit scores.

Fannie Mae and Freddie Mac Can't Use it

Regulation deals the greatest blow to VantageScore’s chances of being the top alternative to FICO. The Federal Housing Finance Agency disallows government-sponsored enterprises, primarily Fannie Mae and Freddie Mac, from using VantageScore to avoid possible conflicts of interest.

This prohibition stems from the fact that the company behind it is the Big 3 of the credit reporting area: Equifax, TransUnion, and Experian. These major credit bureaus currently use older FICO formulas when calculating consumer credit scores.

It is still too early to say that VantageScore has no future in the mortgage lending space, but its outlook is not bright. Although FICO is safe at its place at the top, for now, there is no denying that it can’t be too complacent, for regulators have issued alternative credit scoring rules to level the playing field for other companies.

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