The credit-scoring battle for the hearts and minds of underwriters everywhere heated up this week with a new white paper from VantageScore claiming that its 4.0 model outperforms FICO’s Classic platform on several fronts.
Not only does VantageScore 4.0 expand credit score access for millions more people, the report claims, it also increases risk stratification across the mortgage lending spectrum, delivering enhanced accuracy in both stressed and stable economic environments.
The paper is the latest salvo in the war between the rival scoring models. Last month, FICO issued its own white paper, claiming its flagship model, FICO Score 10 T, “materially outperforms” VantageScore 4.0 in identifying mortgage default risk.
FICO’s study maintains that Score 10 T identifies 18% more defaulters in the lowest credit decile — a key risk band for lenders — compared to 3.4% for VantageScore 4.0, a more than fivefold advantage.
Firing back, VantageScore, the decade-old “new kid on the block” that has finally been allowed to play in the GSE sandbox by the Federal Housing Finance Agency, says its 4.0 model identifies 13.3% more defaults across all loan types than Classic FICO and delivers up to 3.8% more predictive lift. Most lenders still use the FICO Classic model.
The “White Paper War” comes on the heels of the FHFA’s decision in early July to allow lenders working with Fannie Mae and Freddie Mac to use VantageScore 4.0 in place of FICO while still keeping tri-merge credit checks on borrowers.
VantageScore 4.0 uses alternative credit-related data such as rent, utilities, and cell phone charges to score limited files and underserved consumers. In doing so, VantageScore says it can expand the superprime credit tier from 37% to 51%.
The company’s white paper also argues that 4.0 performs better during macro-economic crisis periods, predicting defaults pre-pandemic by more than 48.5% and flagging 11.1% more high-risk loans entering the pandemic period.
Furthermore, VantageScore 4.0 has a 0.5% greater predictive lift than Classic FICO and captures 7.5% more defaults, the company claims. At a 620 credit score, 4.0 has a 6.5% lower default rate, “thereby reducing risk while expanding access.”
Its white paper “presents a data-driven evaluation of VantageScore 4.0 and Classic FICO, rather than serving as a point-by-point rebuttal of any previously published findings,” VantageScore says. “Our loan-level analysis stands on its own, but aligns closely with independent studies that arrive at the same conclusions.”
Several studies, including one from Bank of America Securities and another by JP Morgan Chase, have concluded that 4.0 is a better choice for mortgages than FICO Classic.
VantageScore’s analysis uses the Fannie Mae Single Family Loan Performance dataset, which tracks conforming, first-lien, fixed-rate mortgages originated between Q2 2013 and Q1 2023. For each loan, it extracted the tri-merge VantageScore 4.0 and the average Classic FICO score at origination, taking the simple mean of borrower and co-borrower scores when multiple borrowers were on a loan.
For performance, a loan is flagged as in default if it ever reaches 90 or more days delinquent / defaulting within 24 months.
