Fannie, Freddie consider VantageScore for alternate credit model

September 22, 2014

WASHINGTON (9/23/14)--Fannie Mae and Freddie Mac are studying an alternative credit scoring mode to the current Fair Isaac Corp. (FICO) score, according to a report in National Mortgage News (Sept. 22).

The two government-sponsored enterprises will review VantageScore Solutions, a competitor of FICO.

VantageScore has argued that a switch to a newer model would allow more potential buyers to get a credit score while providing more accuracy as to the likelihood of default for lenders.

According to Credit Card Forum's blog, FICO breaks down its credit score as: 35%, payment history; 30%, amounts owed; 15%, length of credit card history; 10%, new credit; and 10%, types of credit used.

FICO announced in August it would stop including records of a consumer failing to pay a bill if the bill has been paid or settled with a collection agency, and that it will give less weight to unpaid medical bills that are with a collection agency (News Now Aug. 11).

VantageScore does not provide an exact breakdown but lists payment history as "an extremely influential factor;" age, credit type and percentage of credit card limit used as "highly influential factors;" total balances and debt as "moderately influential factors;" and recent behavior, inquiries and available credit as "less influential factors."

Credit Card Forum cites a recent court filing claiming VantageScore has approximately a 5.7% market share, compared with FICO's estimated 90%.

The National Mortgage News report states that, since Fannie and Freddie loans currently count as qualified mortgages, which are considered safer loans, the enterprises' underwriting guidelines "serve as industry-wide standards."

The enterprises will study the latest versions of each--VantageScore 3.0 and FICO Score 9.

Use the resource links below for more information.

National Mortgage News: Fannie, Freddie to Evaluate Alternative Credit Scoring Models

Credit Card Forum: VantageScore vs. FICO score

News Now: Changes in FICO scoring could improve credit access