Which is better for mortgage — FICO or VantageScore?

VantageScore and FICO have escalated their rivalry in the mortgage space following the Federal Housing Finance Agency’s (FHFA) decision to allow Fannie Mae and Freddie Mac to purchase loans underwritten with VantageScore 4.0 as an alternative to the Classic FICO score. 

Both companies published analyses this week from their data scientists. Naturally, each claims their score more accurately reflects borrowers’ financial profiles and better predicts defaults, while casting doubt on their rival’s methodology. 

The FHFA, which has accepted Classic FICO for decades, began to allow lenders to use VantageScore 4.0 last week and is also evaluating the potential adoption of FICO Score 10T.  

On Wednesday, FICO said its data scientists found that FICO Score 10T detects 18% more defaulters in the critical score range than Classic FICO, while VantageScore 4.0 detects only 3.4% more defaulters in the same range. 

But according to FICO’s study, the comparison in the conforming mortgage space limits Classic FICO’s performance to a cutoff of 620. This impacts the “calculation of Classic FICO’s strength by 15% or more, artificially boosting VantageScore 4.0,” Jim Wehmann, the company’s president of scores, wrote a blog post.

In response, VantageScore released a study on Thursday concluding that VantageScore 4.0 predicts 11.2% more defaults than Classic FICO within the highest-risk population in a 10-year dataset. It also outperforms Classic FICO by 3.5% in predicting delinquencies of 90 days or more within two years.

Andrada Pacheco, chief data scientist at VantageScore, said in a statement that the “side-by-side analysis of a robust 10-year historical mortgage data set” involved “no manipulated inference, assumptions or triangulations.” 

The FHFA released VantageScore 4.0 historic credit data in July 2024, and VantageScore claims it is the only one to publish scores at the individual mortgage level for the 10-year period from 2013 to 2023. FICO, in turn, said it hasn’t heard from the FHFA about the historic database for nearly nine months, although it has sent terms and conditions to release the information. 

“When they announced the acceptance of VantageScore 4.0, they reached out to us to get our cooperation on the historical data they need to implement the ‘loser’ VantageScore for this comparison analysis,” said Julie May, vice president and general manager of B2B Scores at FICO. “We receive information like that on X like everyone else, and we’re analyzing and we’ll be engaging with them on next steps.”

An FHFA spokesperson told HousingWire via email that “when Fannie Mae, Freddie Mac and this Agency first engaged FICO over 20 months ago, FICO’s proposed terms were criticized by a wide range of industry stakeholders. VantageScore’s proposed terms, on the other hand, were welcomed by those same industry stakeholders and the data has been in use for over a year.

“The Enterprises have engaged with FICO on updated terms that will allow for a smooth transition, and the Agency and the Enterprises await a substantive response from FICO,” the spokesperson added.  

How do these credit scores compare?

While both companies battle publicly to prove their credit scores perform better in predicting defaults, mortgage executives and loan officers are questioning their differences, similarities and overall effectiveness.

“My bigger question — even before figuring out how to compare them — is, if I have a borrower with a 680 FICO and another with a 680 VantageScore, will I be paid the same for those loans? Or will a 680 VantageScore be considered riskier than a 680 FICO? That’s a question both at the investor level and within MBS pools,” said Michael Metz, operations manager at Arizona-based lender V.I.P. Mortgage. 

Both FICO Score 10T and VantageScore 4.0 incorporate trended data, as well as rental, telecom and utility payment information. But Classic FICO does not include rental data. While this could be an advantage for the newer scores, it’s dependent on the availability of that information. 

According to FICO’s latest analysis, rental data is included in the calculation of FICO Score 10T for only about 2.3 million renters — just a small fraction of the estimated 80 million renters in the U.S. Meanwhile, VantageScore claims that rental, utility and telecom data, along with machine learning techniques, open the mortgage market to 5 million more creditworthy borrowers.

A spokesperson for VantageScore told HousingWire via email that “the inclusion of this type of information in the credit file is particularly beneficial to consumers who otherwise have limited credit experience, allowing them to have their history of complying with these financial obligations present in their credit scores. Currently, in the non-conforming mortgage market, this data is not considered by the incumbent Classic FICO credit scoring model.”

On the issue of differences between the scores, FICO claims that VantageScore includes mortgage-specific variables in its scoring models. This is something FICO chooses not to do, arguing that such variables could penalize consumers who don’t yet own a home — particularly first-time homebuyers and historically underrepresented groups such as military personnel.

Another key difference lies in how the scores treat medical debt collection data. VantageScore 4.0 excludes it, with its spokesperson saying that this was a “design choice that reduces noise and bias without sacrificing predictive performance.”

FICO notes that about 5 million U.S. consumers still have medical collections on their credit files, which can lower scores by an average of 26 points. According to FICO, including medical collections improves the predictive power of credit scores by up to 4% for those affected.

An Urban Institute analysis of VantageScore 4.0 and Classic FICO found that, on average, VantageScore 4.0 is marginally “more effective at identifying high-risk borrowers from among those with the lowest credit scores,” although it determined that the differences with Classic FICO are small.

It added that, on average, “VantageScore 4.0 scores are higher than Classic FICO scores, especially for refinance loans and for investor properties and second homes.”

More borrowers

VantageScore assigns credit scores to individuals with as little as one month of credit history, potentially enabling $1 trillion in incremental mortgage activity through high-quality loans, according to a recent VantageScore analysis.

“While older credit models routinely excluded millions of eligible borrowers, VantageScore 4.0 eliminates the requirement for recent credit activity, which prevented many Americans, including active and recently retired members of the armed services, from obtaining a mortgage,” the company said in a statement. “It provides previously underserved, young-to-credit Americans with newfound access to financial products.”

By contrast, FICO requires at least one account open for six months and one trade line updated within the prior six months for both the Classic FICO Score and FICO Score 10T.

According to May, VantageScore appears more inclusive because it lowers credit scoring criteria — thereby increasing risks for investors and insurers while ultimately raising the cost of a home purchase for the average consumer. Lenders will be incentivized to choose the less rigorous and predictive score, shifting the burden of risk to U.S. taxpayers, which she calls “grossly irresponsible.”

Mandating VantageScore alongside tri-merge requirements gives enormous pricing power to the three primary credit bureaus, she added.

“If anyone thinks that, with that power, the three CRAs are going to lower pricing, they are highly mistaken. It’s going to increase risk, lower confidence, drive adverse selection, and the result is going to be a higher cost for everyone,” May said.  

Still, FICO has also faced criticism for its pricing practices. The mortgage industry has called on the FHFA to take steps to curb FICO’s pricing power.

“Industry chatter expects Fair Isaac to raise prices again this Fall, which would be the 4th year in a row of major hikes,” the Community Home Lenders of America (CHLA) wrote in a letter to the FHFA this week. 

Wells Fargo analysts Jason Haas and Jun-Yi Xie noted in a report that any incremental use of VantageScore would increase revenue for Experian, TransUnion and Equifax since they co-own the company. But the bureaus also benefit from FICO’s price increases as these limit their incentive to compete on price.

“VantageScore is an independent company and has been independent for nearly 20 years,” its spokesperson said. “TransUnion, Experian and Equifax are individual minority owners of VantageScore and do not individually control VantageScore. TransUnion, Experian and Equifax compete vigorously and independently, and they each establish their own end pricing for VantageScore to banks and end users.”

In an open letter to The Wall Street Journal on Friday, VantageScore president and CEO Silvio Tavares argued that “antitrust regulators pursue monopolies for good reason,” noting that they “can lead to price gouging and low-quality products.” The FHFA’s decision to guarantee mortgages based on VantageScore 4.0 “opens the market to the power of additional information, including rental data,” he added.

“Well-functioning markets and economies require good data and competition,” Tavares said. “The time for competition in mortgage credit scoring has come.”