Pavlo Gonchar | Lightrocket | Getty Images
Fair Isaac, the creator of the FICO score, saw shares rally more than 20% on Thursday after it unveiled a new pricing model that will allow mortgage lenders to bypass credit bureaus for credit scores.
The Montana-based data analytics company said it would license its credit scores directly to mortgage resellers who can then distribute FICO scores directly to borrowers. The FICO score is a U.S. credit scoring system that is used by nearly 90% of lenders to evaluate a borrower’s credit risk. Scores generally range from 300 to 850, with higher scores reflecting lower credit risk.
The pop in Fair Isaac’s stock is its largest percent increase since Nov. 22. Shares are down about 9% this year.
Under the new plan, lenders will have the option of choosing between two pricing models. “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,” Fair Isaac CEO Will Lansing said in the release.
Shares of credit bureaus Experian, TransUnion and Equifax fell between 4% and 10% each as investors saw Fair Isaac’s announcement as possibly lessening the importance of their businesses. Fair Isaac plans to offer both of its mortgage score pricing models to the three credit bureaus on the same terms.
Stock Chart IconStock chart icon
Fair Isaac stock performance over the past year.
“The new pricing scheme will offer lenders a choice of both pricing model and distribution model, the former of which we think will improve FICO’s economics and the latter of which we think will ultimately disintermediate credit bureaus from their current ~100% mark-up on the FICO score,” Patrick O’Shaughnessy, a Raymond James analyst, said in a note, reiterating Fair Isaac’s outperform rating.
Bill Pulte, Federal Housing Finance Agency director, said in a Thursday morning X post that Fair Isaac’s move marks an effort to “generate Creative Solutions to help the American consumer.”
Pulte, who in late July had criticized Fair Isaac as a “monopoly” with unfair credit score price hikes, added “I encourage the Credit Bureau’s to also take similar creative and constructive actions to make our markets safer, stronger, and more competitive.”
