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A tale of two credit scores – Are you ready to QC bi-merge credit reporting?

The Federal Housing Finance Agency’s recent announcement that credit scoring on conventional loans will soon include FICO 10T and VantageScore 4.0 is BIG news, especially in terms of accuracy, inclusivity, safety and soundness. Take note though, even though these scoring versions are approved for use now, this is a multi-year rollout for Fannie Mae and Freddie Mac, which means juggling transitioning requirements as eligibility determination, documentation, and data changes are eminent.

At the onset, the industry is looking at retiring a 20-year-old model referred to as Classic FICO, an effort that has been underway since 2014. Notably, most lenders are currently utilizing FICO 8, introduced in 2009. The new credit scoring will be a dual model incorporating both FICO 10T and VantageScore 4.0. Both of these models capture considerably more data as they integrate and analyze credit utilization over the past 24 months, referred to as “trended data.”

The purpose of all scoring remains the same, to help assess the capacity and likelihood that a consumer will pay on time. Falling under the Equal Credit Opportunity Act (ECOA), credit scoring must be “empirically derived, demonstrably and statistically sound.” Despite a singular mission, all credit score models are not the same, especially outside of the scoring used for mortgages, which is intended to be more rigorous. To help set the stage for the forthcoming credit scoring transformation, we’ve included some of the unique characteristics of VantageScore, a few FICO highlights, and key areas of data utilization that will need a QC flashlight:

How is VantageScore different?

Jointly founded in 2006 by Equifax. TransUnion and Experian, VantageScore was created to improve inclusivity as consumers with no credit or a “thin credit file” often had insufficient credit experience to achieve a credit score.

VantageScore version 4.0 was introduced in 2017 and incorporates trended data into the scoring algorithms. In order to generate a score, VantageScore is unique in that it only requires a single tradeline, or account. Additionally, tradelines or accounts are not excluded from scoring based on the age of the tradeline. An early differentiator for VantageScore was and is the use of alternative payments in the event that a consumer does not have a credit card or loan account.

Scoring analytics differ slightly between VantageScore and FICO based on the weighting methodologies used for late payments, number and type of accounts, as well as credit utilization. Previously VantageScore had a score range of 501 to 990. In more recent versions it has been updated to match FICO’s range of 300 to 850. Last but not least, the credit description based on the score range differs. For example, “excellent credit” under FICO is typically 800 to 850, whereas under VantageScore it is 781 to 850.

A FICO Primer

FICO is a publicly traded data analytics company founded in 1956. Created by Bill Fair and Earl Isaac, the company was originally Fair, Isaac and Company. The name was subsequently changed to Fair Isaac Corporation in 2003 and then FICO® in 2009. Fannie Mae and Freddie Mac have been using FICO scores to qualify consumers for mortgages since 1995.

FICO 10T, the T stands for the trended data accumulated for the past 24 months, represents the newest version of scoring algorithms used to predict consumer payment risk. The interpretation and analytical use of trended data is designed to minimize the impact of recent debt accumulation by looking at a consumer’s account balances over time.

What’s the impact on QC?

As we venture into the multi-year effort to implement FICO 10T and VantageScore 4.0 as a dual model approach to credit scoring, FHFA is still mid-process in terms migrating away from current tri-merge credit report requirements. The recent FHFA announcement also stated that they would be working toward transitioning out the current tri-merge credit report requirement for a bi-merge credit report that encompasses FICO 10T and VantageScore 4.0. How might this impact your Quality Control efforts?

· Data Definition – If digitization has taught us anything, it’s that aligning data fields for the entire industry is a challenge at best. The Mortgage Industry Standards Maintenance Organization (MISMO) represents credit data and standards through the Credit Reporting Community of Practice (CoP); however, this does not mean that the corresponding credit data needed for the industry at large is fully defined.

· Data Synchronization – Although data needs are identified for input to either scoring model, specific data requirements must be both fully defined and synced. Until such time, the two models would need to be run independently and the respective scores averaged as determined by FHFA and industry participants.

· Data Integration – Once data requirements are fully defined and the data is synchronized between the two tools, further data field alignment will need to be established within MISMO standards. This ensures that the data is consistently and accurately collected prior to scoring input. The tri-merge data that is established today for retrieval from the three bureaus into the multitude of industry loan origination systems (LOSs), must be transitioned to a bi-merge data integration.

· Data Quality – From a quality of data perspective, somethings never change… garbage in equals garbage out. As the industry undertakes this conversion to FICO 10T and VantageScore 4.0, data quality will need a rigorous check, including evaluating data sources, data accuracy, and the interpretation of data collected prior to bi-merge submission. This should be followed by a data quality check on output from the new scoring models, and most importantly how this is further translated into a lenders system of record for eligibility and determination of credit worthiness. This latter quality check will extend beyond the data, to ensure ECOA and Fair Lending compliance is achieved.

Are you ready for two new credit scores? As with any industry change, mortgage originators need to be prepared to pivot operational and technical resources to meet the forthcoming multi-year transition to a bi-merge credit reporting approach, as well as embrace the nuances of FICO 10T and VantageScore 4.0.

QC Verify understands the importance of being responsive to industry change, as well as the impact it can have on our clients. We designed our Quality Control partnership methodology for just this purpose. You can count on QC Verify to remain in lockstep with your team as you analyze, incorporate, and implement FHFA’s new credit reporting requirements. More importantly, we’re here to identify exceptions and issues that can quickly move your organization to non-compliance if left unidentified and unattended. Our unique boutique approach to QC and audit offers modern automation with extensive industry expertise that goes beyond rules, regulations, and checklists to fully support your operational processes as well as your strategic vision.

We are not you’re typical QC vendor… Find out how and why by visiting us at to learn more about how you can easily embrace industry change with our breakthrough QC solutions and technology.

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