FICO has been the gold standard for FHA mortgages, but supporters of a different system claim it can better predict a borrower’s creditworthiness by looking at nontraditional sources.
For years Fannie Mae and Freddie Mac have used the FICO model to test the creditworthiness of borrowers, but a different scoring system may be giving lenders pause.
Supporters of VantageScore claim it can better predict the creditworthiness for a broader spectrum of borrowers, including minorities and first-time homebuyers, by looking at nontraditional sources, according to Bloomberg. The company claims it can score 30 million to 35 million customers who are currently unscoreable by the current systems used by Fannie and Freddie.
VantageScore looks at additional data including rent and utility payments, reviews 24 months of consumer payment history and credit union history, which aren’t part of FiCO’s’model.
Barrett Burns, president and CEO, told Bloomberg he ran into Mel Watt, director of the Federal Housing Finance Agency (FHFA), at the annual Mortgage Bankers Association convention in Las Vegas. Burns said he was able to convince Watt to let VantageScore come present its side to the regulator.
In August, news broke that Fannie and Freddie were considering updating their credit score models and looking at testing VantageScore. Also in that same month, FICO introduced its latest model, which yields similar characteristics to VantageScore 3.0 – released in March.
VantageScore was created by the three biggest credit reporting agencies – Experian, Equifax and TransUnion – a few years ago to save money. Currently, the three agencies have to pay FICO to license their proprietary FICO scoring algorithms.
