FHFA to Change Credit Score Model for New Applicants

The Federal Housing Finance Agency (FHFA) announced that it will begin using new credit scoring models for borrowers applying for a purchase money mortgage or a mortgage refinance.

The FHFA approved FICO 10 T and Vantage Score 4.0 as the new credit scoring models for conventional mortgages, or loans backed by Fannie Mae and Freddie Mac. The switch is expected to be a multi-year effort as the FHFA works with industry stakeholders to shift to the new credit score models, the agency said.

This is the first major update in 20 years. For the last 20 years, mortgage lenders have been required to use the Classic FICO model. This has persisted despite the creation of many newer credit models that other types of lenders have begun using.

Now, the newly announced models will improve accuracy by capturing new payment histories for borrowers when available, including rent, utilities and telecom payments, according to the FHFA. FICO’s new model even taps into trended data, which offers a historical view such as account balances for the previous 24 months, giving lenders more insight into how individuals are managing their credit. And because more data is available, more homebuyers can potentially qualify for a mortgage.

Previously, FICO’s credit score had been the only one accepted by Fannie Mae and Freddie Mac. But now, another credit score model will also be accepted: Vantage Score.