Credit bureau shares are getting hammered as FICO takes step to directly license mortgage scores

FICO said it will launch a new direct-to-reseller approach, charging 50% less per score.

“This shift will drive price transparency and immediate cost savings to mortgage lenders, mortgage brokers, and other industry participants. Firms that favor working through the credit bureaus can continue to do so,” the company said in a statement released late Wednesday.

FICO shares soared 17.4% to lead the S&P 500’s gainers. It was on track for its biggest one-day gain since it ran up 31.1% on Nov. 10, 2022.

Equifax’s stock

fell 8.4% in recent afternoon trading, enough to lead the S&P 500 index’s

decliners. 

TransUnion’s stock

, which isn’t in the S&P 500, tumbled 10.1%, and the U.S.-listed shares of Ireland-based Experian

fell 4.3%. 

Analysts at Citi say the move could cut out the margin that companies like Experian and Equifax make. Analysts at BMO said it may lead the credit agencies to lower their fees.

“We hope to hear more from the bureaus in terms of defensive strategy here. The bureaus own the consumer data and the related infrastructure and thus are still an important part of the ecosystem,” the BMO analysts said.

Equifax and Experian did not respond to a MarketWatch request for comment. A TransUnion spokesperson referred MarketWatch to a spokesperson from the Consumer Data Industry Association (CDIA).

It’s “simply not true,” that the direct license program offered by FICO will cut costs for consumers, the CDIA spokesperson wrote in an email to MarketWatch.

“FICO is also ignoring the reality that comprehensive data is the foundation of powerful and predictive credit scores, which help protect the health of the U.S. mortgage market,” the CDIA spokesperson said.

FICO says its scores are used by 90% of top U.S. lenders.

Equifax bonds strengthen

Corporate bonds issued by Equifax either held steady or strengthened on Thursday despite the sharp drop in the company’s stock price. (Neither TransUnion nor Experian have U.S.-issued debt).

Interest rates offered on corporate bonds from Equifax either remained about flat or tightened against Treasurys, which are basically seen as risk free. (See chart below.)

The difference in interest rates offered by Equifax and U.S. Treasurys continued to narrow on Thursday. PHOTO: BONDCLIQ

When the spread narrows between a corporate bond and the yield on a Treasury note of similar duration, which are basically seen as risk-free, it is typically seen as a sign of investor confidence in the creditworthiness of a corporate bond.

In the case of Equifax, the continued investor interest in its debt may suggest that, although the FICO news may be spooking those who own the stock, it doesn’t mean the company’s ability to make interest payments has been reduced.