Fair Isaac Corporation, the creator of the widely used FICO score, saw its shares surge more than 20% on Thursday following the announcement of a major shake-up to its credit scoring business. The Montana-based data analytics company unveiled a new pricing model that allows mortgage lenders to license FICO scores directly from Fair Isaac, bypassing traditional credit bureaus. This move gives lenders more control over pricing and distribution while potentially reducing costs for borrowers. The FICO score, a benchmark in U.S. credit evaluation, is used by nearly 90% of lenders to assess credit risk, with scores ranging from 300 to 850, where higher scores indicate lower risk.
The jump in Fair Isaac’s stock marked its largest single-day percentage gain since November 22 and came despite the stock being down roughly 9% year-to-date. Under the new framework, lenders can select between two pricing models, enabling them to avoid the additional mark-ups historically imposed by credit bureaus. “This change eliminates unnecessary mark-ups 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. Analysts view this move as a strategic step to enhance FICO’s economics while potentially disintermediating the traditional role of credit bureaus.
The announcement had a notable impact across the credit reporting sector. Shares of Experian, TransUnion, and Equifax fell between 4% and 10% as investors weighed the implications of Fair Isaac’s new licensing model on the relevance and profitability of the bureaus. While Fair Isaac plans to offer both of its mortgage score pricing models to the three credit bureaus on identical terms, the direct-to-lender option could diminish the value-add previously provided by these intermediaries. Raymond James analyst Patrick O’Shaughnessy highlighted that the dual-choice approach for pricing and distribution could ultimately reduce the roughly 100% mark-up that credit bureaus historically imposed on the FICO score, while also potentially improving FICO’s margins.
The move has also drawn attention from federal regulators. Bill Pulte, director of the Federal Housing Finance Agency, acknowledged Fair Isaac’s initiative on social media, calling it an effort to “generate creative solutions to help the American consumer.” Pulte, who had criticized the company in July for acting as a “monopoly” with excessive price hikes on credit scores, encouraged credit bureaus to consider similar innovations to strengthen competition and market fairness.
Overall, Fair Isaac’s announcement represents a transformative step in the mortgage and credit scoring markets, giving lenders unprecedented flexibility, putting downward pressure on costs, and challenging the traditional dominance of Experian, TransUnion, and Equifax. Investors rewarded the bold strategy with a significant stock rally, signaling optimism about the company’s growth potential and its ability to reshape the industry.
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