FICO® Score 10 T Outshines VantageScore 4.0 in Mortgage Predictive Accuracy
FICO (NYSE: FICO), a global leader in analytics software, has released a groundbreaking white paper showcasing the superior predictive power of its latest credit scoring model, FICO® Score 10 T, in mortgage origination. The analysis reveals that FICO® Score 10 T decisively outperforms VantageScore 4.0, offering lenders and borrowers a more accurate, inclusive, and impactful tool for assessing mortgage risk.
The findings underscore FICO’s commitment to delivering advanced analytics while addressing fairness and inclusivity in credit scoring. This development is poised to reshape the mortgage industry by driving higher approval rates, improving pricing accuracy, and lowering costs for millions of Americans.
A Clear Winner in Predictive Power
The white paper highlights an independent third-party analysis comparing the predictive capabilities of FICO® Score 10 T, VantageScore 4.0, and the classic FICO scoring model. The results are striking:
- FICO® Score 10 T demonstrated a fivefold improvement over VantageScore 4.0 in detecting loan defaults within the critical score decile used for mortgage origination. Specifically, FICO® Score 10 T identified 18% more defaulters compared to just 3.4% for VantageScore 4.0.
- The marginal improvement offered by VantageScore 4.0 over Classic FICO was so minimal that, when accounting for a truncation anomaly detailed in the white paper, it raises questions about whether VantageScore 4.0 truly surpasses the older model at all.
These findings confirm that FICO® Score 10 T is not only the most predictive credit scoring model available today but also a transformative tool for the mortgage industry.
Benefits for Borrowers and Lenders
The enhanced predictive accuracy of FICO® Score 10 T translates into tangible benefits for both borrowers and lenders. By adopting this model, market participants can:
- Increase Loan Approvals: Improved precision allows lenders to approve more qualified borrowers who might otherwise be overlooked using less accurate models.
- Optimize Mortgage Pricing: Better risk assessment enables lenders, mortgage insurers, and investors to price loans more accurately, reducing costs for borrowers.
- Lower Costs for Borrowers: With more accurate predictions, lenders can minimize losses, passing savings on to consumers in the form of lower interest rates and fees.
Ethan Dornhelm, Vice President of Scores and Predictive Analytics at FICO, expressed pride in his team’s achievement: “I’m proud of my analytics team for developing such a strong credit score for predicting mortgage default. We were confident that FICO Score 10 T would significantly outperform VantageScore 4.0 in predicting mortgage risk, and this analysis shows that conclusively.”
A Commitment to Fairness and Inclusivity
Beyond its predictive prowess, FICO® Score 10 T sets itself apart through its commitment to fairness and inclusivity. Unlike VantageScore 4.0, which incorporates mortgage-specific variables that penalize individuals who have never owned a home, FICO’s model embraces alternative data sources like rental payment history without disadvantaging renters.
Jim Wehmann, President of Scores at FICO, criticized VantageScore’s approach: “Just as the mortgage industry begins to embrace rent as a meaningful indicator of credit readiness, VantageScore 4.0 penalizes renters with lower scores. VantageScore’s mortgage variables will force lenders to inform disadvantaged groups or members of the military through adverse action notices that they have been rejected for a mortgage because they don’t currently own a home. Imagine telling a potential borrower, ‘you need a mortgage to get a mortgage.’ Not only is that confusing to consumers, it is unfair.”
This inclusive design ensures that young people, military personnel, and individuals from disadvantaged backgrounds receive fair treatment in the credit evaluation process. By leveraging rental data and avoiding penalties for non-homeownership, FICO® Score 10 T aligns with the evolving needs of modern borrowers and lenders.
Industry Adoption and Validation
Since its validation and approval by the Federal Housing Finance Agency (FHFA) in October 2022, FICO® Score 10 T has gained significant traction among major players in the mortgage industry. Early adopters representing over $300 billion in annual mortgage originations and $1.5 trillion in mortgage servicing portfolios have already implemented the model.
The widespread adoption reflects confidence in FICO® Score 10 T’s ability to deliver decisive performance improvements over competing models. Its integration into the origination of conforming mortgage loans by Fannie Mae and Freddie Mac further solidifies its role as the gold standard in credit scoring.
Why FICO® Score 10 T Matters
The mortgage industry plays a critical role in shaping economic opportunities for millions of Americans. Accurate credit scoring models are essential for ensuring fair access to homeownership while minimizing risks for lenders and investors. FICO® Score 10 T addresses these needs by combining cutting-edge analytics with a focus on fairness and inclusivity.
By identifying high-risk borrowers more effectively and avoiding biases against renters, FICO® Score 10 T empowers lenders to make informed decisions that benefit both their businesses and consumers. For borrowers, this means greater access to affordable financing options and a more equitable path to homeownership.
About FICO
FICO (NYSE: FICO) powers decisions that help people and businesses around the world prosper. Founded in 1956, the company is a pioneer in the use of predictive analytics and data science to improve operational decisions. FICO holds more than 200 US and foreign patents on technologies that increase profitability, customer satisfaction and growth for businesses in financial services, insurance, telecommunications, health care, retail and many other industries. Using FICO solutions, businesses in more than 80 countries do everything from protecting 4 billion payment cards from fraud, to improving financial inclusion, to increasing supply chain resiliency. The FICO® Score, used by 90% of top US lenders, is the standard measure of consumer credit risk in the US and has been made available in over 40 other countries, improving risk management, credit access and transparency.
