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VantageScore: Better Than FICO for Mortgages?
23 Feb
Summary
- VantageScore uses more data and predicts risk better than FICO.
- Lenders and consumers will save nearly $600 million in fees.
- VantageScore 4.0 captured more defaults than legacy FICO.
- Congress passed the Credit Score Competition Act in 2018.
VantageScore was developed to enhance mortgage default prediction, aiming to prevent future financial crises. While FICO was the standard during the 2008 recession, research indicated its limitations in forecasting mortgage defaults. The bipartisan Credit Score Competition Act of 2018 fostered a competitive market, leading lenders to adopt VantageScore due to its superior data utilization and risk prediction capabilities.
Leading financial institutions like JPMorgan Chase and Bank of America have found VantageScore 4.0 to be more effective at predicting risk through extensive mortgage analysis. This innovation is expected to yield significant savings, with nearly $600 million in mortgage credit score fees anticipated to be saved by 2026. Analyses confirm that VantageScore 4.0 has captured a notably higher percentage of incremental defaults compared to the legacy FICO Classic score, underscoring its enhanced predictive power.
