Experian Ups the Ante with Free VantageScore 4.0 for Lenders

The war between the credit bureaus and FICO just got hotter. Experian introduced its new Score Choice Bundle that includes VantageScore 4.0 and FICO 2. The VS 4.0 component is free to mortgage lenders.

The credit bureau couches the move as competitive, saying Score Choice Bundle will give subprime borrowers a better shot at home ownership.

This news follows on the heels of pricing changes from FICO and Equifax. FICO got the ball rolling by introducing a direct license to mortgage lenders that cuts costs by half. However, by cutting out the credit bureaus, the FICO license makes lenders handle data gathering, validation, and auditing.

Equifax struck back by lowering its price for VS 4.0 to $4.50 per score. Moreover, VS 4.0 is free through 2026 for customers who also buy FICO scores. Experian’s free offer means it will not be undersold — some may say its prices are insane.

The Federal Housing Finance Agency lit this firecracker when it approved VS 4.0 for Fannie and Freddie earlier this year. This immediately broke FICO’s monopoly on government-backed mortgages. VS 4.0 includes new data, such as rent and utility payments, that help subprime borrowers qualify for loans.

The Credit Scoring Price War

The free bundle encourages nonbank and other subprime lenders to test the system. Lenders will get to compare VS against FICO. They will be able to see how well VS meets the new GSE standards. It will also identify borrowers who qualify for one model but not the other. Lenders can now capture once-ineligible borrowers.

Experian’s free score bundle hits back at Equifax and FICO, providing lenders with an even more competitive option.

Another important aspect of the bundle is transparent pricing. It identifies the separate costs for credit data, score processing, and algorithm licensing. That’s a boon to smaller lenders who operate on thin margins.

Experian’s move eclipses those of FICO and Equifax because it combines all the best features of competitors without requiring new compliance work by lenders. In other words, bundle users get lower pricing, fee transparency, and dual-score access in one nifty package.

Make no mistake, this is a war for control of credit risk analytics, the heart of the subprime lending sector.

What It Means for Subprime Lenders and Borrowers

For those who lend to subprime borrowers, the bundle may enable more originations and profits through lower costs and richer data. The cost savings make it cheaper to pull credit data more frequently while underwriting loans.

The extra data bandwidth will give some lenders more confidence to approve iffy applicants. The goal is to reduce overall risk and avoid unexpected defaults.

There’s a cost involved: complexity. The participating lenders will be forced to balance FICO and VS models. That adds compliance costs, integration expenses, and potentially inconsistent loan decisions.

The pressure will be greatest for community lenders and internet subprime lenders because their margins are thinner. But in the game of market share, an earlier start may allow smaller lenders to grab moderate-income and near-prime customers in the short term.

Subprime borrowers with questionable credit may have better luck purchasing homes. Broader data inputs can boost borderline borrowers over the starting gate. The result could be a stampede of new subprime mortgage originations that previously would have been missed.

Bottom Line

We are witnessing a true power grab. It may help determine control of nonprime risk measurement. The ball is now in the competition’s court.