(Bloomberg) -- Fair Isaac Corp. will now sell credit scores directly to mortgage resellers, a move that sent shares of third-party credit bureaus plunging.
Through a new program, mortgage resellers will be able to calculate and distribute credit scores directly to customers, reducing their reliance on credit bureaus. This will bring more price transparency and savings for mortgage lenders, mortgage brokers and other industry participants, FICO said in a statement.
Shares of credit-reporting bureaus TransUnion and Equifax Inc. each fell more than 8% on Thursday. FICO shares were up 18% at the close after posting a 32% surge, the biggest intraday gain on record.
Credit scores are a key tenet of American consumer financing, used by lenders to judge how well individuals can pay back their obligations. The three major providers of consumer credit reports in the US — Equifax, TransUnion and Experian Plc — help consumers apply for mortgages or car loans.
Federal Housing Finance Agency Director Bill Pulte said in a post on X that FICO took "a first step" in "ensuring a competitive and safe and sound market" to generate creative solutions to help consumers.
The "mortgage pricing shift should be a big win for FICO," Needham analyst Kyle Peterson wrote in a note. The move would be "significantly beneficial for FICO, while also keeping costs stable both for homebuyers and mortgage originators."
Citigroup Inc. analyst Arthur Truslove wrote in a note Thursday that Equifax hosted a call for bank analysts following FICO's press release. The company reassured investors on its ability to maintain profits in the mortgage space.
The FICO announcement follows a move by Fannie Mae and Freddie Mac to allow lenders to consider a score generated by VantageScore Solutions LLC when determining whether a customer is credit-worthy enough to buy a home. That would lower lenders' reliance on FICO scores.
--With assistance from Georgie McKay.
(Updates with closing share prices in third pargraph and Citi analyst comment in seventh paragraph.)
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