Credit models for mortgages are being overhauled. Here’s what to know

The way that mortgage lenders assess credit risk is undergoing its biggest overhaul in decades as the Federal Housing Finance Agency (FHFA) is preparing to roll out a new framework that allows lenders to use two scoring models — FICO 10T and VantageScore 4.0.

FHFA Director Bill Pulte and the Trump administration have voiced support for more competition by allowing the government-sponsored enterprises (GSEs) to adopt alternative credit models. In July, Pulte announced via social media that Fannie Mae and Freddie Mac would accept VantageScore 4.0 immediately.

On the horizon, too, is an eventual shift from the long-standing tri-merge credit report to a bi-merge version. While the changes aim to shake up how risk is measured and presumably lower costs, lenders are concerned that the transition could be complicated and expensive.

For years, Fair Isaac Corp. (FICO) dominated mortgage lending. FHFA’s approval of VantageScore 4.0, developed by the three major credit bureaus, introduces a new level of credit competition. As a response, FICO rolled out a new pricing model for its credit scores, selling them directly through tri-merge resellers. 

“Equifax, Experian, and TransUnion collectively own VantageScore and, as an oligopoly in the conforming mortgage market, have historically controlled the pricing and distribution of both FICO Scores and VantageScores,” a FICO spokesperson said in a statement.

“This structure poses an obvious challenge to the true-score competition in the mortgage market and ultimately undermines the integrity of the mortgage credit ecosystem.”

Anticipated benefits

Cynthia Chen, CEO and founder of Kikoff, a financial platform that provides tools to help users build credit, said that the benefits at hand are lower credit report fees, faster loan processing and potential cost savings.

“VantageScore 4.0 leverages advanced machine learning and trended credit data, enabling lenders to better identify responsible borrowers, especially those with limited or recently improved credit histories,” Chen added.

Unlike earlier models, which capture a borrower’s credit snapshot, newer versions analyze up to two years of payment patterns. This means consistent, on-time payments can help borrowers qualify for better terms sooner.

Sandra Tobon, director of housing counseling and community outreach at Consolidated Credit, said the update forces lenders to view borrower behavior more holistically.

“With trended data now playing a bigger role, it’s no longer enough to look at a borrower’s credit at one moment in time,” she said.

S. P. “Wije” Wijegoonaratna, CEO of Aliya Financial Technologies, said the legacy system often disadvantages some borrowers.

“Traditional credit scores like FICO were designed around mortgages, the largest consumer lending market, and therefore make commercial sense, and as a result, the scores are often poorly suited for the smaller, unsecured loans that underserved consumers actually need,” he said.

Craig Ungaro, chief operating officer at AnnieMac Home Mortgage, explained that the industry is reckoning with “two forces happening at the same time” — rising credit costs and scoring modernization.

“There’s a major price hike going on with the bureaus and FICO,” Ungaro said. “At the same time, there’s this modernization effort saying, ‘Hey, the profile of borrowers today is changing. Maybe we need different credit methodologies.’ Those two timelines are colliding.”

He said lenders are trying to “stop the bleeding” by optimizing when and how they pull credit. “Only about 18 to 20% of credit pulls become funded loans,” Ungaro said. “That means more than 80% are wasted costs.”

To cope with that, Ungaro said that lenders like AnnieMac are ramping up efforts to optimize credit report usage and manage vendor contracts.

Ungaro expects some relief from increased score competition but remains cautious. “I expect that my costs are still going to go up,” he said. “We’re just trying to be smarter about it.”

He warned that as lenders adopt alternative credit data and new scoring models, fair lending compliance will be critical.

“You could run into issues if loan officers are flipping between models to get approvals,” he said, adding that he is keeping an eye on buy now, pay later (BNPL) activities. “You have to make sure the process remains fair.”

He also questioned the shift to bi-merge credit reports, which would use data from two bureaus instead of three. “Only about 74% of trade lines report to all three bureaus,” he said. “If we’re using just two, are we really getting the full picture?”

Lenders await clarity

The FHFA and GSEs are expected to phase in the new models over the next few years, but lenders are still waiting for final timelines and final bureau pricing.

FICO told HousingWire it has kept credit score prices flat — and in some cases, cut them by half — by removing the middleman through a new direct licensing model.

“In 2025, tri-merge resellers paid on average $10 per FICO Score. In 2026, tri-merge resellers participating in the FICO direct license program will pay $10 per FICO Score or they can elect to cut this price by more than half and pay $4.95 under our performance model,” the company’s spokesperson wrote.

“In addition, the $4.95 for our performance model includes secondary use of the score for origination, which is estimated to be an additional 18% or more cost savings.”

Credit bureaus announced pricing in October.

Starting in 2026, TransUnion said it will offer VantageScore 4.0 for $4 per score and provide it free to lenders that purchase a FICO score through the end of that year. The company said the pricing compares to FICO’s $10 per score announced for 2026.

Experian said last month it would make VantageScore 4.0 available at no cost indefinitely, pledging that if it ever begins charging, its pricing will remain at least 50% lower than FICO’s.

A week earlier, Equifax said it would offer VantageScore 4.0 at $4.50 per score through 2027 while also providing it for free through 2026 to customers who purchase FICO scores during that period.

FICO said that any rise in credit costs next year would likely stem from credit bureaus increasing data fees to offset lost revenue from no longer distributing FICO scores. The company noted that bureaus previously charged a markup of about 100%, which was made possible by limited competition in the conforming mortgage market.

Ungaro said Wednesday that his team expects updates “in the next week or so.” In the meantime, lenders are preparing — but are not sure for what exactly.

“We’re not panicked,” he said. “But yeah, I wish there was a little more clarity.”