New Credit Scoring Reforms Enhance Mortgage Accessibility Without Assuring Loan Approval
Micah Abigail LLC founder and credit repair expert Micah Smith speaks to Fox News Digital about the most important differences between FICO 10T and VantageScore 4.0.
New credit scoring models are making waves in the mortgage industry, potentially increasing the number of Americans who receive a credit score. However, experts caution that a score on paper does not guarantee loan approval.
As credit repair specialist Micah Smith explains, “People with thin credit files … might be able to see a score … but that doesn’t necessarily mean mortgage approval.” She further clarified that approximately 33 million more individuals could receive a score with these newer models, yet not all will be approved for loans.
Recently, the VantageScore 4.0 model entered the mortgage market, directly competing with FICO 10T. These algorithms represent two updated credit formulas approved by federal regulators for future mortgage use, each designed to provide a more comprehensive view of a borrower’s financial habits.
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FICO 10T incorporates “trended data,” allowing it to analyze how consumers manage their balances and payments over time, rather than just capturing a snapshot from a single moment on a credit report. In contrast, VantageScore 4.0 broadens the types of information that can contribute to a score, which is why it is expected to generate scores for millions of Americans with previously thin or incomplete credit files.
More credit scores do not mean more approved mortgages, credit expert Micah Smith explains to Fox News Digital. (Getty Images)
While both models modernize the credit scoring system in unique ways, the choice of which algorithm to use ultimately lies with lenders, not consumers. “You’re not gonna have the ability to choose between the two. So it’s going to be up to the lender’s discretion in regards to which algorithm they actually use,” Smith stated. She emphasized the importance of focusing on fundamental habits that have historically contributed to building a good credit score.
If someone’s score drops under a new algorithm, Smith recommends a three-step triage plan that includes everyday habits to improve credit over six months to a year. “Three tips that you can easily utilize to make sure that your scores jump up into higher tiers: One, we want to study the credit report and look for errors,” she advised. “Bringing down balances on credit cards is always going to move the needle … [and] what we would ask people not to do is don’t make a rush and an irrational decision. Don’t chase trends, don’t look at gimmicks.”
Smith also highlighted concerns among industry professionals regarding a potential shift toward a “too lenient” VantageScore 4.0 model, which could lead to a housing crisis reminiscent of the Great Recession. “The guardrails are in place now because we learned from 2008, 2009. And so, what we’re seeing is that lenders are a lot stricter in regards to their criteria,” she argued, dismissing fears of a collapse.
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Smith explained that lenders today are much more cautious, ensuring that borrowers can afford to repay their loans. “Introducing a new algorithm, that’s not going to be an issue. What would be an issue is being sloppy, and giving out these loans unnecessarily to unqualified individuals … Essentially, there’s too many guardrails in place to cause a major crash.”
As of Wednesday, mortgage rates are inching closer to sub-6% levels, with Zillow reporting the 30-year fixed rate at 6.04% and the 15-year fixed home loan rate at 5.47%.
Smith cautioned against the biggest mistake consumers make when they hear about a new scoring model, emphasizing the risk of “falling forward” without fully understanding the details. “I think the biggest thing that I want people to understand when it comes to these new scoring models is pay attention to the narrative and who’s pushing it out,” she advised. “No matter how flat you make a pancake, there’s always two sides. And so don’t blame the scoring model for, let’s say, potentially a lackluster score. You have to understand that credit has a way of working and there are people to help you get there.”
“When you get the score right, when you start building good habits, no matter which algorithm pulls it, you’re gonna see a better score all around. And so it really does come down to the timeless habits. Don’t place blame on these algorithms for an inferior score … Everyone makes mistakes. There’s risks and there’s drawbacks to everything, but fall forward into any sort of program that you sign up for. You sign your name on a dotted line, make sure you know the risks.”
Micah Abigail LLC founder and credit repair expert Micah Smith speaks to Fox News Digital about the most important differences between FICO 10T and VantageScore 4.0.
New credit scoring models are making waves in the mortgage industry, potentially increasing the number of Americans who receive a credit score. However, experts caution that a score on paper does not guarantee loan approval.
As credit repair specialist Micah Smith explains, “People with thin credit files … might be able to see a score … but that doesn’t necessarily mean mortgage approval.” She further clarified that approximately 33 million more individuals could receive a score with these newer models, yet not all will be approved for loans.
Recently, the VantageScore 4.0 model entered the mortgage market, directly competing with FICO 10T. These algorithms represent two updated credit formulas approved by federal regulators for future mortgage use, each designed to provide a more comprehensive view of a borrower’s financial habits.
JEFFREY GUNDLACH SAYS CRACKS FORMING IN AMERICA’S MULTITRILLION-DOLLAR PRIVATE CREDIT MARKET
FICO 10T incorporates “trended data,” allowing it to analyze how consumers manage their balances and payments over time, rather than just capturing a snapshot from a single moment on a credit report. In contrast, VantageScore 4.0 broadens the types of information that can contribute to a score, which is why it is expected to generate scores for millions of Americans with previously thin or incomplete credit files.
More credit scores do not mean more approved mortgages, credit expert Micah Smith explains to Fox News Digital. (Getty Images)
While both models modernize the credit scoring system in unique ways, the choice of which algorithm to use ultimately lies with lenders, not consumers. “You’re not gonna have the ability to choose between the two. So it’s going to be up to the lender’s discretion in regards to which algorithm they actually use,” Smith stated. She emphasized the importance of focusing on fundamental habits that have historically contributed to building a good credit score.
If someone’s score drops under a new algorithm, Smith recommends a three-step triage plan that includes everyday habits to improve credit over six months to a year. “Three tips that you can easily utilize to make sure that your scores jump up into higher tiers: One, we want to study the credit report and look for errors,” she advised. “Bringing down balances on credit cards is always going to move the needle … [and] what we would ask people not to do is don’t make a rush and an irrational decision. Don’t chase trends, don’t look at gimmicks.”
Smith also highlighted concerns among industry professionals regarding a potential shift toward a “too lenient” VantageScore 4.0 model, which could lead to a housing crisis reminiscent of the Great Recession. “The guardrails are in place now because we learned from 2008, 2009. And so, what we’re seeing is that lenders are a lot stricter in regards to their criteria,” she argued, dismissing fears of a collapse.
FOX Business contributor Katrina Campins weighs in on portable mortgages, the housing crisis and more on ‘Maria Bartiromo’s Wall Street.’
Smith explained that lenders today are much more cautious, ensuring that borrowers can afford to repay their loans. “Introducing a new algorithm, that’s not going to be an issue. What would be an issue is being sloppy, and giving out these loans unnecessarily to unqualified individuals … Essentially, there’s too many guardrails in place to cause a major crash.”
As of Wednesday, mortgage rates are inching closer to sub-6% levels, with Zillow reporting the 30-year fixed rate at 6.04% and the 15-year fixed home loan rate at 5.47%.
Smith cautioned against the biggest mistake consumers make when they hear about a new scoring model, emphasizing the risk of “falling forward” without fully understanding the details. “I think the biggest thing that I want people to understand when it comes to these new scoring models is pay attention to the narrative and who’s pushing it out,” she advised. “No matter how flat you make a pancake, there’s always two sides. And so don’t blame the scoring model for, let’s say, potentially a lackluster score. You have to understand that credit has a way of working and there are people to help you get there.”
“When you get the score right, when you start building good habits, no matter which algorithm pulls it, you’re gonna see a better score all around. And so it really does come down to the timeless habits. Don’t place blame on these algorithms for an inferior score … Everyone makes mistakes. There’s risks and there’s drawbacks to everything, but fall forward into any sort of program that you sign up for. You sign your name on a dotted line, make sure you know the risks.”
