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In July 2025, a pivotal change got here to the mortgage trade, when the Federal Housing Finance Agency formally accredited the use of VantageScore 4.0 as an alternative choice to Classic FICO for mortgages bought by Fannie Mae and Freddie Mac.
VantageScore claims that Classic FICO is poor and that its personal mannequin is extra predictive of defaults and scores extra debtors. Based on our evaluation, their methodology is flawed, a lot in order that the claimed variations between VantageScore 4 and Classic FICO disappear. Given the trillions in mortgage debt, thousands and thousands of debtors, and immense taxpayer publicity, it’s important that the debate be grounded in info quite than advertising and marketing.
FICO has anchored mortgage underwriting since the mid-Nineteen Nineties. VantageScore, created in 2006 by the three credit score bureaus, spent years attempting to interrupt in, pitching itself as higher at scoring thousands and thousands of “credit score invisible,” a strategy to break FICO’s monopoly, and decreasing prices.
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That marketing campaign gained traction with Congress’s 2017 Credit Score Competition Act, which required FHFA to arrange a clear approval course of for brand new fashions. In 2022, FHFA accredited VantageScore 4.0 alongside FICO 10T. Political momentum grew after the COVID-19 affordability disaster, which fueled calls to increase credit score entry. Rising FICO charges—from about $0.60 in 2018 to $4.95 in 2025—added trade frustration and political urge for food for another and should effectively have affected FHFA’s choice to undertake VantageScore 4.0.
Riding that momentum, VantageScore just lately claimed that its 4.0 mannequin predicted “as much as 49% extra mortgage defaults main into the COVID-19 pandemic interval than Classic FICO.” The firm described this as a “head-to-head” comparability, however a better look reveals elementary flaws.
An AEI Housing Center evaluation discovered two: a methodological mismatch and choice bias. VantageScore in contrast the common of three bureau scores for its mannequin in opposition to the GSE customary (center of three, or decrease of two) for Classic FICO — an apples-to-oranges take a look at. More importantly, its most dramatic findings got here from a pattern restricted to loans with FICO scores of 720 or much less, which skewed the ends in VantageScore’s favor. Run on the whole pattern, and Classic FICO comes out forward.
When examined on a full, unfiltered dataset with constant methodology, VantageScore’s benefit disappears. On two of VantageScore’s most well-liked measures, Classic FICO scores barely higher, with VantageScore having a marginal benefit on the third. For every metric the particular person variations are small.
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Other impartial research affirm this. The Urban Institute discovered cumulative defaults at the backside decile differed by only one share level, and Milliman concluded that each fashions have robust predictive energy with solely marginal variations throughout rating ranges.
VantageScore claims it’s going to cut back prices for customers, however the numbers inform a unique story. A typical tri-merge credit score report prices $80–$100, paid to a reseller. To create it, the reseller purchases credit score recordsdata from every of the three repositories at $13–$25 apiece. Each repository then pays FICO roughly $5 in royalties — about $15 whole. In the context of hundreds of {dollars} in closing prices, FICO’s share is marginal at finest.
The fact is whereas FICO has lengthy been the sole supplier of an accepted mortgage credit score rating, the three credit score repositories — which collectively personal VantageScore — are additionally the unique sellers of the underlying credit score information. Replacing FICO with their very own mannequin would not essentially decrease prices for customers — it merely permits them to seize a much bigger slice of the pie.
Perhaps most troubling are VantageScore’s claims that extra competitors will strengthen the market. In actuality, designing new Loan Level Pricing Adjustors and rebuilding investor fashions is a Herculean activity, made more durable by the indisputable fact that FICO and VantageScore do not line up cleanly.
The unfold for particular person scores might be large: for instance, a borrower with a 720 FICO would possibly register wherever from 660 to 800 on VantageScore. This dispersion makes it exhausting to immediately map Classic FICO-based LLPAs onto VantageScore 4.0 as VantageScore has proposed. This problem is compounded by an absence of historic efficiency information on loans denied on the foundation of a Classic FICO, however which might have been accredited utilizing a VantageScore 4.0. This leaves traders and not using a dependable strategy to calibrate and value threat.
More competitors additionally invitations gaming. Because FHFA explicitly permits “rating buying,” lenders, realtors, and debtors may merely select the extra favorable rating, resulting in extra approvals, looser credit score, and larger default threat, whereas leaving susceptible debtors with unsustainable debt. Score suppliers, in flip, could decrease their standards to win extra enterprise.
These dangers multiply if FHA follows swimsuit: Far extra debtors would qualify – VantageScore estimates 5 million— however with housing provide already constrained, that additional demand would solely push residence costs increased. This would end in worsening affordability, particularly for first-time consumers. And if traders in mortgage-backed securities have been to lose confidence in the credit score scores, they could demand increased yields, elevating prices for all debtors. Any supposed financial savings from ending FICO’s monopoly would vanish, whereas taxpayers can be left holding the bag.
One factor is evident: the predictive energy of VantageScore 4.0 and Classic FICO is successfully the identical. Thus, the actual threat for the housing finance system isn’t Classic FICO— it is the premature and fraught adoption of a two-score system. Policymakers ought to proceed cautiously, making certain adjustments serve debtors, lenders, traders, and taxpayers — not only a rating supplier. If the purpose is to save lots of customers cash, maybe the higher query is whether or not a tri-merge credit score report is even mandatory at the moment.
