Shares of credit bureaus fall as FICO rolls out direct mortgage score licensing

(Reuters) -Shares of major credit reporting companies tumbled on Thursday after U.S. data analytics company Fair Isaac Corp unveiled a program that allows mortgage resellers to calculate and distribute its creditworthiness score directly to consumers. This could pressure earnings and margins of three main U.S. credit bureaus Experian, Equifax and TransUnion, analysts said as they have been providing credit data and FICO scores to produce reports for mortgage underwriting. FICO score, created by Fair Isaac, is the most widely adopted credit scoring system in the U.S., with top lenders using it to evaluate a borrower's creditworthiness. The higher the number, the lower the risk of default. "It implies that this would cut out the margin that the likes of Experian and Equifax make on the FICO credit score," analysts at Citigroup wrote in a note. "Our initial reaction is that this is negative for Experian and Equifax." Experian shares were down 5% in London. U.S.-listed Equifax fell 11% in premarket trading, while TransUnion was down 9%. The change would bring price transparency and immediate cost savings to mortgage lenders, brokers and other industry participants, Fair Isaac said, noting that firms preferring to work through the credit bureaus can continue to do so. The change, however, could intensify competition in the credit scoring business as it gives lenders more direct access to FICO scores. "By introducing a licensing program for tri-merge resellers, FICO is effectively taking away the ability of the credit bureaus to mark up the FICO score," analysts at Jefferies said in a note. The brokerage said the new models could hit credit bureau earnings by an average of 10% to 15%. "For the bureaus to take price, they will now have to directly negotiate with the lenders, as well as compete with each other." (Reporting by Manya Saini in Bengaluru and Samuel Indyk in London; Editing by Arun Koyyur)

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