New approach to credit scoring data could reshape US home lending
Shares of Equifax and Experian sink after Fair Isaac Corp moves to sell its ratings directly to industry data groups
The US company behind Fico homebuyer credit scores revealed plans to sell its ratings directly to industry data companies, thumping the shares of the credit bureaus that typically sell their widely watched numbers.
The move has the potential to disrupt what for decades has been a bedrock of US mortgage lending, but could also ease some of the pressure that Fair Isaac Corp has come under from US government officials who have called it a “monopoly”.
Fair Isaac Corp, based in Bozeman, Montana, said on Wednesday after the market close that it would sell the programme to calculate Fico scores directly to so-called tri-merger resellers, which compile data from the three main credit bureaus — Equifax, Experian and TransUnion.
“Today marks a turning point in how credit scores are delivered and priced across the mortgage industry,” Fico chief executive Will Lansing said. “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.”
The numbers from credit bureaus are an important factor in whether a lender will make a loan. Fico scores aim to predict the likelihood that a borrower will repay their mortgage.
Typically, credit bureaus gather customer borrowing data and use Fico’s software to calculate a score for lenders to gauge the credit worthiness of a potential homebuyer.
Fico shares closed 18 per cent higher on Wall Street, taking the group’s market capitalisation to almost $43bn.
Shares of the credit bureaus fared poorly. On Wall Street, Equifax dropped almost 8.5 per cent, while TransUnion was down 10.6 per cent. London-listed Experian fell more than 3 per cent.
Analysts predicted that the move would ease pressure on Fico from the Federal Housing Finance Agency, the government agency overseeing mortgage lenders Fannie Mae and Freddie Mac.
FHFA head Bill Pulte had previously criticised Fico as a “monopoly who has ripped off Americans for decades”.
Jaret Seiberg, a financial research analyst at TD Cowen, said Fico’s new direct licensing move “should reduce the government pressure on Fico’s pricing”.
“That likely takes off the table more radical actions such as using Fannie and Freddie to limit how much Fico may charge or convincing the Justice Department to investigate the company on antitrust grounds,” Seiberg wrote in a note to clients.
Following Fico’s announcement, Pulte posted on X that he appreciated the company “taking Constructive Criticism, which was given in the spirit of ensuring a competitive and safe and sound market”.
Fico said firms still have the choice to work through the credit bureaus.