Fair Isaac Corp., the company behind the popular FICO credit score, saw its stock jump sharply on Thursday morning. The boost came after the firm announced plans to sell its scores directly to mortgage resellers, shaking up the industry and putting pressure on big credit bureaus like Experian, Equifax, and TransUnion.
Those credit bureaus took a hit, with their shares dropping fast. Investors worry this move could squeeze their profits by cutting out their middleman role in delivering FICO scores to lenders. The FICO score, which Fair Isaac developed, helps almost 90% of U.S. lenders check how reliable a borrower is when it comes to repaying loans. A higher score signals lower risk of default, making it easier to get approved for things like mortgages.
Fair Isaac says offering direct access to FICO scores will spark more competition and make pricing clearer for everyone involved. Lenders won’t have to pay the roughly 100% markup that credit bureaus tack on right now, according to analysts at Raymond James. This could save money for mortgage lenders, brokers, and others in the housing market.
The announcement even won praise from Bill Pulte, director of the Federal Housing Finance Agency (FHFA), who oversees key players like Fannie Mae and Freddie Mac. In a post on X (formerly Twitter), Pulte called Fair Isaac’s idea a “creative solution” to help everyday American consumers. Earlier this year, though, Pulte had slammed the company over its pricing and pushed for more use of rival credit scoring models in mortgage lending.
FICO’s stock climbed as much as 26% following Pulte’s nod, potentially wiping out all its losses for the year so far. On the flip side, Citigroup analysts called the news a blow to Experian and Equifax. “Our initial reaction is this is negative for them,” they noted in a report, pointing out how direct licensing strips away the profit margins these bureaus earn from reselling FICO scores.
Shares reflected the concern: Experian fell 4.8% in London trading, U.S.-listed Equifax dropped 7%, and TransUnion slid 11%. Experian, Equifax, and the Consumer Data Industry Association didn’t respond to comment requests right away, while TransUnion declined to comment.
This isn’t the first shake-up in credit scoring. Earlier, FICO’s stock suffered when Pulte greenlit the use of VantageScore for Fannie Mae and Freddie Mac mortgages. VantageScore, launched in 2006, is a joint effort by Equifax, Experian, and TransUnion, creating direct rivalry for FICO and raising questions about whether FICO could keep hiking prices.
Analysts at Needham see Fair Isaac’s latest step as a win for the FHFA. It could ease the regulatory worries hanging over FICO’s stock and deliver quick cost cuts to industry players. Lenders and resellers can still go through credit bureaus if they want, but the direct option puts more power in their hands.
“This change eliminates unnecessary markups on the FICO Score and puts pricing model choice in the hands of those who use FICO scores to drive mortgage decisions,” said Fair Isaac CEO Will Lansing.
The shift ramps up competition in the credit scoring world, giving lenders easier access to FICO scores without the extra fees. Jefferies analysts warn it could slash credit bureau earnings by 10% to 15% on average. Now, if bureaus want to charge more, they’ll have to haggle directly with lenders and battle each other for business.
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