Fair Isaac Corporation has introduced a new pricing model that enables mortgage lenders to calculate and distribute FICO scores directly to borrowers, thereby bypassing credit bureaus.
The company said the change will make pricing more affordable and help consumers, mortgage lenders, brokers and others in the industry save money right away.
Under the new system, mortgage lenders will have two ways to get FICO scores. They can pay $4.95 per score. That's about half the cost of what they used to pay because they are no longer going through credit bureaus, which would add extra fees. If the loan goes through and gets funded, FICO is charging an extra $33 in additional costs per borrower. Alternatively, lenders can stick with the previous model and pay $10 per score upfront.
“Today marks a turning point in how credit scores are delivered and priced across the mortgage industry,” said Will Lansing, chief executive officer of FICO.
“Direct licensing of the FICO Score brings transparency, competition, and cost-efficiency to the mortgage-lending process. 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,” the executive added.
The announcement sparked a strong reaction from the market. Shares of FICO rallied more than 20% on the news Thursday, marking the biggest intraday gain on record.
Industry trade groups welcome move
“MBA has led the industry in calling for fixes to the anticompetitive market and increasing costs that lenders and consumers pay for required tri-merge credit reports and other credit reporting products,” Mortgage Bankers Association president and CEO Bob Broeksmit said in a statement following the announcement.
“FICO’s new program — which enhances transparency and provides more options to lenders — is a step in the right direction. While it remains to be seen if this will result in materially lower costs, MBA will monitor the implementation of this new program while continuing to call for reforms that support a better credit reporting system that promotes more competition, efficiency, and lower costs for consumers,” the executive added.
Credit scores play a big role in consumer financing. Lenders use them to determine how likely people are to repay what they borrow. Three major credit bureaus — Equifax, Experian, and TransUnion — collect credit data and provide FICO scores, which are used to apply for home mortgages and car loans.
The bureaus did not return messages seeking comment. A credit bureau trade group questioned whether FICO's new deal would bring savings.
"While the Direct License Program announced by FICO is positioned as a cost-cutting measure, it is simply not true. In reality, it is another price increase by FICO. With this announcement, FICO has at least doubled its publicly disclosed prices year-over-year while introducing operational costs and risks to resellers and lenders. FICO’s pricing proposal will also inevitably cause lenders to pass on significantly higher costs to consumers," The Consumer Data Industry Association said in a statement.
Federal Housing Financing Agency Director Bill Pulte said in a post on X that FICO had taken the “first step” in making “the Market more competitive, and safer and sounder, for the benefit of the American People!”
The announcement comes as Fannie Mae and Freddie Mac begin allowing lenders to use VantageScore 4.0, a credit score developed by the three major credit bureaus as an alternative to the traditional FICO score. This shift could reduce lenders’ reliance on FICO, which has long dominated the mortgage credit-scoring market. It’s also part of a broader effort by federal regulators to increase competition and lower costs in the credit reporting system.
“This is another defensive move by FICO, the monopoly that has controlled the credit scoring model for decades, to offset the impact of the FHFA's new guidelines concerning bi-merged credit report model and the acceptance of the Vantage 4.0 score model,” Paul Oster, CEO of Better Qualified, LLC, a company that specializes in assisting individuals and companies with their credit ratings, told Homes.com in an email.