Through a late-October announcement, the Federal Housing Finance Agency (FHFA) stated it has “validated and approved” of the FICO 10T and VantageScore 4.0 credit scoring models and will be accepted for use by government-sponsored entities Fannie Mae and Freddie Mac (the GSE’s). 

The two scoring models have been in use for some time through alternative channels but can now be used to apply and secure a government-backed mortgage. 

According to FICO, the FICO 10T model is designed to outperform all previous scoring models and is touted to be the most predicted and comprehensive model developed by the company to calculate borrowers credit risk by including borrower payment histories. FICO estimates that the new score could reduce mortgage defaults by 17%. 

VantageScore 4.0 is an independent joint-venture between the three credit bureaus (Equifax, Experian, and TransUnion). This score takes into account rent and utility payments, allowing those with no credit history a chance to secure better financing due to additional data points. They claim their model can score 96% of the country’s adult population. 

“Today’s decision will benefit borrowers and the Enterprises, along with maintaining safety and soundness,” said Sandra L. Thompson, Director of the FHFA. “While implementing the newer credit score models is a significant change that will take time and require close coordination across the industry, the models bring improved accuracy and a more inclusive approach to evaluating borrowers.” 

The adoption of the scores will be a multiyear effort. Once fully adopted, all lenders will be required to deliver both new scores for each GSE-backed loan. The FHFA and the GSEs will be monitoring implementation and conducting outreach to borrowers and lenders alike to ensure a smooth transition. 

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This article was originally published on DSNews on October 25, 2022.