FHFA Expands Credit Scoring: VantageScore Joins the Game 🚀

🧾 What’s Changing?

Big news from the FHFA (Federal Housing Finance Agency): lenders can now use VantageScore 4.0 alongside FICO when originating mortgages for Fannie Mae and Freddie Mac.

Here’s what’s shifting:

• VantageScore 4.0 is now approved for use in conforming loan underwriting.

• FHFA scrapped its earlier requirement for lenders to pull both VantageScore and FICO. Now it’s either-or, giving lenders flexibility.

• The existing tri-merge credit reporting system remains intact, avoiding a costly and disruptive overhaul.

🔗 Source – WSJ
🔗 Source – America's Credit Unions

🆚 FICO vs. VantageScore: What’s the Difference?

For decades, FICO has been the gold standard in mortgage credit scoring. It’s the score most lenders use when deciding whether a borrower qualifies for a home loan—and it heavily weights traditional credit usage, like credit cards, auto loans, and payment history. If you've ever been told your “credit score” is too low for a mortgage, chances are it was your FICO score doing the talking.

Enter VantageScore 4.0, the challenger with a fresh perspective. Developed by the three major credit bureaus (Equifax, Experian, and TransUnion), VantageScore includes many of the same credit behaviors as FICO—but with a twist:

• It considers alternative data like rent, utility, and cellphone payments.

• It scores consumers after just one month of credit history (compared to FICO’s six months).

• It uses more recent trended data to evaluate credit behavior over time, rather than a single moment.

In short: FICO tells a snapshot story; VantageScore tells a video story. And now, thanks to a major policy change by the FHFA, lenders working with Fannie Mae and Freddie Mac finally have a choice in which story they want to listen to.

💡 Why the Change?

This shift wasn’t just for fun. The FHFA is addressing three key priorities:

• More competition, fewer costs: FHFA Director Bill Pulte criticized recent FICO fee increases and emphasized the need for competition.

• Greater access to credit: VantageScore 4.0 includes alternative data like rent, utility, and telecom payments—giving borrowers with “thin” credit files a better shot at qualifying.

• Congress made them do it: Under the 2018 Housing and Economic Recovery Act, FHFA is required to validate and approve multiple scoring models. Both VantageScore 4.0 and FICO 10T passed the accuracy and fairness tests in 2022.
  🔗 Source – FHFA

📊 What This Means for the Mortgage Industry

This change might sound technical, but it could shake up how we do business—here’s how:

Lender Flexibility Increases
Lenders now have options. If a borrower’s FICO score is too low, but their VantageScore tells a different story, you can pivot—without being locked into one system. This flexibility opens doors, especially for first-time buyers, gig workers, and renters.

Implementation Still Matters
While the FHFA gives the green light, lenders must still update underwriting platforms, risk models, and compliance protocols if they adopt VantageScore. That’s no small feat—but for many, the reward could be worth the lift.

FICO's Monopoly Gets Challenged
FICO stock dropped sharply after the announcement, reflecting the market’s reaction to its reduced stronghold. But many lenders may choose to keep using FICO, at least initially, out of familiarity and integration ease.
🔗 Source – Barron’s

Borrower Access Could Grow Significantly
More inclusive scoring means more Americans—an estimated 5 million—could qualify for a mortgage. This could unlock as much as $1 trillion in new lending volume, potentially boosting homeownership and economic equity.
🔗 Source – WSJ

🐼 Mama Bear’s Take

This is more than a tech tweak—it’s a step toward a fairer, more flexible lending environment. If you're working with clients who’ve been on the edge of qualifying, this change could be their breakthrough. Lenders and agents alike should start brushing up on VantageScore criteria and be ready to adjust strategies as the shift rolls out.

📞 Have questions or want to map out how this could affect your buyers? Reach out to me and let’s set a time to chat.