Buying A Home? A New Credit Score Could Lower Your Rate

The Federal Housing Finance Agency has expanded the availability of VantageScore 4.0 to all approved Fannie Mae and Freddie Mac lenders.

These lenders now may choose either VantageScore 4.0 or Classic FICO to evaluate borrowers for eligible mortgages sold to Fannie Mae or Freddie Mac. Requesting that your lender use VantageScore 4.0 could save you money on your next mortgage.

United Wholesale Mortgage said approximately one in four of its borrowers received a more favorable credit result with VantageScore 4.0, potentially improving pricing, mortgage insurance costs or loan eligibility.

Not every lender has implemented the option. Fannie Mae also continues to require Classic FICO for manually underwritten loans.

On Sept. 30, Fannie Mae announced that it was aligning loan-level pricing adjustments across the two models for whole loans purchased on or after Oct. 1 and mortgage-backed securities with issue dates on or after Oct. 1.

Chris Sbonek, President and Chief Executive Officer for Mitten Mortgage Lending, spoke about an instance where using VantageScore 4.0 enabled him to offer a borrower a lower rate or a $2,700 lender credit. All because of a better credit score with VantageScore 4.0.

“The borrower’s VantageScore was significantly higher, placing them in a much better credit bracket,” Sbonek told us.

Small outstanding collection issues seem to be less of a factor with VantageScore 4.0 than with Classic FICO scores in Sbonek’s experience.

“Your situation only stands to improve from checking your (VantageScore 4.0) score. If it isn’t better, we just don’t use it." — Chris Sbonek, President and CEO of Mitten Mortgage Lending

“Small utility collections from an old internet provider or TV company under $500 seem to have a much more adverse effect on FICO compared to Vantage,” Sbonek said.

He encourages borrowers to ask their lenders to use VantageScore 4.0.

“When it comes to Vantage, the worst-case scenario is you just revert to your FICO score. Your situation only stands to improve from checking your Vantage score. If it isn’t better, we just don’t use it,” Sbonek advised.

VantageScore 4.0 can also produce the same or a lower score than Classic FICO. Lenders must use the same scoring model for all borrowers on a single mortgage.

Borrowers with credit scores that don’t reflect how reliable they may be with handling credit may benefit from a lender using VantageScore 4.0.

“The borrowers most likely to benefit are those whose traditional credit scores don’t reflect how reliable they are, such as people with limited credit histories, a record of paying rent and utilities on time, or finances that are improving,” Adam Staveski, Principal Associate at The Pew Charitable Trusts, told us.

“For most borrowers, the savings will be modest.” — Adam Staveski, Principal Associate at The Pew Charitable Trusts

Rent and utility payments must be reported to the credit bureaus to be included in the score.

Landing in a better credit tier with VantageScore 4.0 could lead to lower fees and a lower interest rate on an approved mortgage.

“A higher score can lower the fees borrowers pay to get a mortgage, which are often built into the interest rate,” Staveski said. “For most borrowers, the savings will be modest.”

Melinda Opperman, Chief External Affairs Officer at Credit.org, recommends consumers comparison shop potential mortgage lenders, asking about the scoring models that they use.

“Prospective borrowers should comparison shop and ask lenders directly whether they use today’s methods to capture rental history, utilities and mobile phone payment history to create full credit files, and how that scoring model could affect their eligibility or loan terms,” Opperman told us.

Joey Rivero, Broker Owner at Clear Choice Lending Group, told us sometimes VantageScore 4.0 and Classic FICO scores come back identical or just a point apart. But when there is a significant difference between scores, it can lead to savings for the borrower.

He gave an example of a consumer having a 706 FICO score, but then they checked VantageScore 4.0 and received a score of 770.

“We were able to get them PMI based on 770, so it was cheaper,” Rivero said.