Credit scoring changes expand mortgage access but don’t guarantee loans

New credit scoring models rolling out across the mortgage industry could dramatically increase the number of Americans who receive a credit score — but experts warn that borrowers shouldn’t confuse a number on paper with actual loan approval.

As credit repair specialist Micah Smith put it, “People with thin credit files … might be able to see a score … but that doesn’t necessarily mean mortgage approval.”

“It’s actually being shown that about 33 million more people are actually going to have a score with these newer models, not approved,” she clarified.

A few months ago, the VantageScore 4.0 model entered the mortgage market, competing directly with FICO 10T. The algorithms represent the two updated credit formulas federal regulators have approved for future mortgage use, each designed to paint a more detailed picture of a borrower’s financial habits.

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FICO 10T incorporates “trended data,” meaning it looks back over time to see how consumers manage balances and payments rather than capturing only a single moment on a credit report. VantageScore 4.0, meanwhile, expands the types of information that can count toward a score — which is why it’s expected to generate scores for millions of Americans who previously had 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 system in different ways, lenders — not consumers — will ultimately decide which algorithm they rely on when evaluating a mortgage application.

“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 said. “And so the biggest thing we want people to focus on is … just continuing with the fundamentals and focusing on what has consistently, in the past, built a good credit score.”

If someone’s score drops under a new algorithm, Smith offers a three-step triage plan, including everyday habits that could 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 further 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 pointed out that fellow industry professionals have expressed concerns that a potential shift toward a “too lenient” VantageScore 4.0 model could trigger a…