The American Enterprise Institute’s (AEI) recent opinion piece (“FICO isn’t the problem. A premature two-score system is“) challenges a nearly unanimous market conclusion: VantageScore 4.0 is a more predictive credit score for mortgages than Classic FICO. Tobias Peter and Sissi Li’s critique tells yesterday’s story. VantageScore 4.0 is about tomorrow, and the market agrees. 

While Peter and Li’s research paper claims that “both VantageScore 4.0 and Classic FICO are effective in identifying high-risk loans, with only marginal differences between the two,” VantageScore’s analysis tells a clearer, verifiable and more quantitatively precise story. Their analysis rests on misunderstandings, outdated assumptions, selective omissions, and a general refusal to acknowledge what is coming next for mortgage finance: the end of a decades-old monopoly and the beginnings of beneficial competition in credit scoring. 

READ MORE: Fannie Mae updating disclosures to pave way for VantageScore

At its core, the AEI study and editorial criticize VantageScore for analyzing mortgages within a specific score range, claiming the approach introduces “bias.” But that criticism misses the point. Effective stress testing relies on a rigorous examination of the segments most vulnerable to default. By concentrating on borrowers who are historically more prone to stress, analysts can see whether a model truly separates high-risk from low-risk consumers. 

We can examine some recent examples. During the COVID-19 pandemic, historical default patterns made it clear which groups carried the greatest exposure. Focusing on those populations is necessary in a stress test. If a risk model can’t hold up under scrutiny where the exposures are highest, it isn’t robust. That’s exactly why the population in question was not only justified but is essential to proving the model’s ability to differentiate credit risk. 

Interestingly, the AEI’s white paper admits that, even after performing their own recalculation and removing what they consider to be methodology flaws, VantageScore 4.0 still demonstrates predictive improvement and captures more defaults in the riskiest decile: identifying 32.9% of defaults versus 32.0% for Classic FICO. 

Instead of highlighting this performance advantage, the AEI’s researchers brush this finding off as a “modest 3% lift.” However, when this predictive lift is applied to the trillion-dollar GSE portfolio, a 3% advantage is enormous. Tens of thousands of defaults identified earlier could mean billions in avoided losses. To dismiss this gain as a “modest” lift is akin to dismissing a safety feature that prevents thousands of accidents a year. 

Classic FICO was the only score used in mortgage originations in 2008, when deficiencies in stress testing led to a deterioration in underwriting standards that ultimately resulted in the collapse of the housing market, according to the St. Louis Federal Reserve. 

The American Enterprise Institute study also refers to the fact that the mortgage released dataset only includes loans that FICO allowed in the market. That is true, but this “survivorship bias” (as they call it) only creates an advantage for Classic FICO.

Independent studies that analyzed the same dataset and concluded that VantageScore 4.0 is “better” than Classic FICO in mortgage are ignored by the AEI white paper. These analyses include research from JPMorgan Chase, Bank of America, Bloomberg Intelligence and credit rating agency KBRA.

Additionally, even the two independent research studies (by the Urban Institute and Milliman) cited by AEI’s editorial and white paper confirm that while both models are predictive, VantageScore 4.0 is stronger in identifying high-risk borrowers at the lower end of the credit spectrum.  

Moreover, the piece avoids engaging with the full breadth of VantageScore’s own published white paper (“VantageScore 4.0 and Classic FICO: A Comparison“). Our findings provide evidence of VantageScore 4.0’s predictive superiority over the entire span of ten years of performance data, for different borrower types and timeframe slices across pre- and post-COVID periods. If AEI’s critique had merit across these broader datasets, one would expect them to address those results directly. Their silence speaks volumes.

Forward-looking credit scoring matters, and VantageScore’s models stand up to the most intense scrutiny. The AEI editorial attempts to defend the status quo by nitpicking methodology and downplaying results that show clear advantages for VantageScore 4.0. However, this is not only about model accuracy; it is about whether we keep propping up an outdated system or embrace one designed for the future. 

VantageScore 4.0 is not just a comparable model; it is the future: a more inclusive, modern, forward-looking, and risk-sensitive credit scoring model that strengthens the housing finance system and expands access to responsible credit.