I ran across an interesting piece from HousingWire recently that's worth understanding if you're thinking about getting a mortgage in the coming months. According to their reporting, Fannie Mae and Freddie Mac have started allowing lenders to use a newer credit scoring model called VantageScore 4.0 as an alternative to the traditional Classic FICO scoring that's been standard for decades. This is a meaningful shift because these two models don't necessarily evaluate the same borrower in the same way, kind of like how two different appraisers might value the same property differently while looking at the exact same facts.
The key distinction here is how each model works. VantageScore 4.0 incorporates what's called trended credit data, which means it looks at how your credit behavior has changed over time rather than just taking a snapshot of where you stand right now. It can also factor in rental payment history if that information is available. Classic FICO doesn't operate quite the same way. For someone with a solid, traditional credit history, the difference between these two models probably won't matter much. But for someone whose credit story is different or thinner, one model might tell a very different story than the other.
Here's where it gets practical though. According to HousingWire's reporting, which cites an analysis by consulting firm Milliman, VantageScore produced better loan pricing about twenty-five percent of the time when comparing historical mortgage data. The two models produced identical pricing roughly thirty-six percent of the time, and Classic FICO was better about forty percent of the time. So this isn't a magic loophole that automatically saves everyone money. Sometimes VantageScore helps, sometimes FICO wins, sometimes it makes no difference at all.
The reason any of this matters is that mortgage pricing works in ranges, and crossing into a different range can make a real difference in your actual loan costs. A borrower's Classic FICO might put them just outside a favorable pricing tier, but VantageScore might evaluate them differently enough to get them into better pricing. And on a mortgage of several hundred thousand dollars, even small differences in rate or upfront costs can mean thousands of dollars over the life of the loan.
What I'm seeing locally is that smart borrowers need to have a conversation with their lender about this. If you're applying for a conventional mortgage, ask your lender whether they can run your application through both scoring models and tell you which one actually gives you the better overall pricing. Don't get caught up in which score number is higher. What matters is what you're actually going to pay for the mortgage. This is another tool in the toolbox, and in our market where every advantage counts, you want to make sure your lender is using it for your benefit.
