Micah Smith, founder of Micah Abigail LLC and credit repair expert, talks to Fox News Digital about the most important differences between FICO 10T and VantageScore 4.0.
A new credit scoring model being rolled out across the mortgage industry could dramatically increase the number of Americans receiving credit scores, but experts warn that borrowers shouldn’t confuse numbers on paper with actual loan approvals.
as Credit Repair Specialist Micah Smith “People with bad credit…may be able to check their score…but that doesn’t necessarily mean they’ll be approved for a mortgage.”
“Actually, it has been shown that about 33 million more people actually get their scores on the new model, which is not approved,” she revealed.
A few months ago, the VantageScore 4.0 model entered the mortgage market and competed directly with FICO 10T. The algorithm represents two modern credit formulas approved by federal regulators for future mortgage applications, each designed to provide a more detailed picture of a borrower’s financial habits.
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FICO 10T incorporates “trend data.” This means looking back at how consumers manage their balances and payments over time, rather than just capturing a single moment on a credit report. VantageScore 4.0, on the other hand, expands the types of information that can count toward your score. As such, it is expected to be able to generate scores for millions of Americans who previously had sparse or incomplete credit files.
Increasing your credit score doesn’t mean you’ll be approved for more mortgages, credit expert Micah Smith tells Fox News Digital. (Getty Images)
Both models modernize the system in different ways, but ultimately lenders, not consumers, decide which algorithms to rely on during evaluations. Application for a mortgage loan.
“You can’t choose one over the other, so it’s really up to the lender’s discretion as to which algorithm they use,” Smith said. “So the biggest thing we want people to focus on is to continue with the basics and focus on the things that have consistently built good credit scores in the past.”
If the new algorithm lowers someone’s score, Smith suggests a three-step triage plan that includes daily habits that can improve your credit score over six months to a year.
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“Three easy-to-use tips to ensure your score stays on top. One is to look at your credit report and look for mistakes,” she further advised. “Reducing credit card balances always makes a big difference… [and] What we want people not to do is not make hasty and irrational decisions. Don’t chase trends or look to gimmicks. ”
Smith noted that industry experts have expressed concern that a potential move to the “too generous” VantageScore 4.0 model could spark a housing crisis similar to the one that created the housing crisis. Great recession.
“Guardrails are now in place because we learned from 2008 and 2009. And what we’re seeing is lenders are becoming much more stringent in terms of standards,” the credit expert argued against any kind of collapse.
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“When they were making these loans without documentation and without doing a thorough investigation of who they were lending to, they were selling these loans to Wall Street in 2008 and 2009 with no repercussions for the lenders,” Smith explained.
“Lenders are now more cautious and are doing due diligence to see if someone can actually afford to repay a loan. So introducing new algorithms is not the problem. What is the problem is unnecessarily lending to sloppy and unqualified individuals…Essentially, there are too many guardrails to cause a crash.”
As of Wednesday, home loan interest rate is Zillow reports that the 30-year fixed rate is 6.04% and the 15-year fixed mortgage rate is 5.47%, inching closer to below 6%.
Mr Smith warned of the biggest mistake consumers make when they hear a new scoring model is coming, highlighting the risk of “moving ahead” without understanding the details.
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“I think the biggest thing I want people to understand about these new scoring models is to pay attention to the narrative and who is driving it,” she said. “No matter how flat you make the pancake, there are always two sides. So, for example, you can’t blame the scoring model for potentially lackluster scores. You have to understand that trust works and there are people who can help you get there.”
“Once you get your scores right and start building good habits, all your scores will improve regardless of which algorithm is running them. And it comes down to timeless habits. Don’t blame these algorithms for your low scores…Everyone makes mistakes. There are risks and downsides to everything, but throw yourself into any type of program you sign up for. You sign your name on the dotted line. Make sure you understand the risks.”
