Credit score competition is coming to the mortgage industry but what does this mean for you, your family and friends? It means we now have the power and potential to expand sustainable homeownership opportunities to millions of Americans currently disadvantaged by traditional credit scoring models.
How will it affect me?
Model competition will result in more accurate, reliable, inclusive and updated mortgage credit scores, which means significant benefits for you.
The way consumers use credit has changed, but traditional credit scoring models have not adapted to these shifting behaviors, resulting in millions of Americans being penalized and unjustly denied mortgage loans.
With credit score competition:
In August 2019, the Federal Housing and Finance Administration (FHFA), Fannie Mae and Freddie Mac’s regulator, issued a new rule authorizing Fannie Mae and Freddie Mac to stop using the current outdated and exclusionary credit score models. (Fannie Mae and Freddie Mac are responsible for facilitating and supporting the majority of U.S. mortgage originations.)
They now are considering using other more inclusive and accurate credit scoring models when assessing credit risk for loan candidates.
VantageScore, which is used for all other loan types, is a potential alternative under consideration to the current required model that’s now in place. Here are a few facts about VantageScore:
Allowing updated models to be used in the mortgage market will help create an environment where companies will keep pushing one another to build more advanced scoring models that take into account of the current economy and how people use credit today. The end result: more accurate credit scores that drive sustainable homeownership opportunities and less defaults.
Why is it important?
VantageScore and other credit score model developers may now have an opportunity to bring more predictive and inclusive credit scores to the mortgage marketplace.