For decades, a single credit scoring model — FICO — has dominated the mortgage lending process in the United States. But in a significant move that could reshape how Americans secure home loans, Fannie Mae and Freddie Mac, the twin giants backing 70% of the US mortgage market — have officially opened the doors to an alternative: VantageScore 4.0. This development may transform how millions approach the journey to homeownership.
Why This Matters: Understanding Credit Scoring Models
The FICO Stronghold
Until now, nearly all mortgage underwriting decisions hinged on FICO scores, a proprietary system developed by Fair Isaac Corporation. The model weighs factors like payment history, debt levels, and length of credit history. Data often inaccessible to many renters, immigrants, and younger borrowers.
To qualify for a conventional mortgage, borrowers typically need a credit score of at least 620. With the best interest rates reserved for those scoring 750 and above. But for millions who lack a traditional credit footprint, this requirement has long been a barrier.
The VantageScore 4.0 Advantage
Created by Equifax, Experian, and TransUnion in 2006, VantageScore 4.0 is designed to include a broader picture of credit behavior. It incorporates data such as rent and utility payments, which are often ignored by traditional scoring methods. This opens the path to mortgage approval for a population that was previously underserved.
By leveraging this more inclusive credit scoring model, VantageScore 4.0 could unlock access to conventional mortgages for up to 5 million Americans. Especially among historically marginalized groups such as Black, Latino, and immigrant communities.
Lower Costs, More Opportunity
Closing Cost Relief for Borrowers
In addition to expanding access, the shift also addresses rising credit report fees, which have ballooned in recent years. Today, a full credit report for mortgage purposes can exceed $140. And in some cases reach $300 — costs typically passed on to the homebuyer at closing.
With competition between FICO and VantageScore, analysts hope to see reduced pricing and increased efficiency, further easing the financial burden on buyers and lenders.
Policy Support and Implementation
The Federal Housing Finance Agency (FHFA), led by Bill Pulte, has publicly supported the adoption of VantageScore 4.0 and announced incentives for lenders who utilize both credit models. This dual scoring framework is expected to encourage broader adoption, especially among smaller lending institutions.
Borrowers will still need to meet standard income, asset, and underwriting requirements, but this expansion creates a more level playing field for those with nontraditional credit histories.
Real-World Impact on Borrowers and the Market
More Inclusive Homeownership
For those who’ve historically relied on renting, the inclusion of on-time rental payments as a credit metric marks a major shift in how creditworthiness is assessed. This not only increases eligibility but could also lead to better mortgage rates, especially for borrowers previously pushed toward FHA loans with higher insurance costs and stricter appraisal rules.
Potential Shift in Loan Types
As some borrowers see their VantageScore come in 15 to 30 points higher than their FICO scores. It could make conventional loans a more attractive and attainable option. This may reduce dependency on FHA loans, which while accessible, are sometimes less favored by sellers and come with their own limitations.
What to Watch Going Forward
The mortgage industry is still in the early stages of adapting to this change. Not all lenders currently offer VantageScore-based underwriting, and Fannie Mae and Freddie Mac will gradually implement new procedures over the coming months.
Still, the shift signals a larger transformation in financial inclusion. As the housing market continues to evolve, credit scoring model must evolve with it — prioritizing not just past behavior, but current potential.
Conclusion: Toward a More Equitable Mortgage Market
The integration of VantageScore 4.0 into mortgage lending is more than a technical update — it’s a statement. A statement that access to credit should be more inclusive, that renters and underbanked individuals deserve fair consideration. And that mortgage approval shouldn’t be locked behind outdated data models.
As lenders adapt and technology advances, this move could ultimately lead to a more equitable and competitive housing market — and more Americans achieving the dream of homeownership.
