In a stunning shake-up to the credit scoring world, Fair Isaac Corp., better known as FICO, unveiled a new program on October 1 that lets mortgage lenders buy its scores directly, skipping the usual middlemen—the big credit bureaus. The move hit markets hard today, with FICO shares rocketing up more than 20% to around $2,100 by midday trading. Indeed, investors piled in fast, seeing this as a smart play to cut costs and boost FICO's grip on the industry.
Equifax, one of those bypassed bureaus, watched its stock plunge nearly 9% to about $280. The same fate struck peers like TransUnion, down over 8%, while Experian dipped in after-hours. FICO's plan slashes fees to $4.95 per score—a 50% drop from what lenders pay through resellers—or offers alternatives like $10 flat or $33 per funded loan. This direct licensing could erode billions in bureau revenues, as these firms have long marked up FICO scores to pad their profits.
However, the announcement feels like a long-overdue jab at an opaque system that's drawn complaints for years. Lenders have griped about high costs and delays, especially in a housing market still reeling from rate hikes. FICO, which dominates with over 90% of U.S. mortgage decisions based on its scores, is positioning itself as the efficiency king here. Moreover, analysts are buzzing; Barclays hiked its FICO target to $2,400, while Needham stuck with a buy at $1,950.
Yet, not everyone cheers. Credit bureaus argue this fragments data access and might complicate compliance. Indeed, regulatory eyes are already on the sector after past breaches and accuracy scandals. FICO's earlier profit bump in July, raising forecasts amid strong demand, now looks prescient against this backdrop.
As Wall Street digests the fallout, one wonders how deeply this rift will reshape lending transparency for everyday borrowers.