Fair Isaac: has the machine stalled?

Published: 2025-07-09 10:27:42 ET FICO

Published on 07/09/2025 at 10:27

By Adrien Chavanne

Fair Isaac is the company that provides the most widely used credit scores in the United States for assessing borrowers' creditworthiness. It also sells software used by banks and insurers to automate decisions such as loan approval, fraud detection, and customer management.

The decade from 2014 to 2024 was simply exceptional: nothing less than one of the best stockmarket performances in the entire US market. The share price rose from around $50 to nearly $2,400 (yes, a 48-fold increase!). Profitability is remarkable and has grown steadily over the years. Fair Isaac has leveraged its dominant position to make regular price increases, which have clearly been the company's main growth driver.

Until recently, investors assumed that Fair Isaac's model would not change in the coming years and that margins and revenues could continue to grow unhindered.

However, the situation could indeed be more complicated in the future. First, because monetary policy in the United States remains restrictive due to Donald Trump's tariffs and inflation. The reasoning is as follows: restrictive monetary policy = high interest rates = less lending = less business for Fair Isaac.

In addition, the decision to allow the use of the VantageScore 4.0 model in mortgage lending has weighed most heavily on the stock in recent weeks. This means that lenders can now use this competitor to the FICO score for loans guaranteed by Fannie Mae and Freddie Mac, two key institutions in the US real estate market. These institutions do not grant loans directly, but buy mortgage loans from banks and convert them into financial securities (MBS) that are then resold to investors. They account for nearly half of all new mortgage applications. Until now, only the FICO score was accepted in this circuit. The move to allow VantageScore marks a significant change for Fair Isaac, which until now had enjoyed a virtual monopoly. VantageScore also introduces new features, as the tool incorporates alternative data such as rent and phone bills.

However, analysts following the issue have been cautious: lenders have little experience with VantageScore and may remain cautious to avoid having to take on poorly rated loans. Some even believe that abandoning the plan to impose both scores prevents VantageScore from becoming a standard on a par with FICO and protects the latter's dominant position.

There is no cause for alarm, despite the stock's 28% drop from its peaks. Fair Isaac's dominant position is certainly being challenged, but only on the surface for now. The FICO Score remains deeply rooted in the practices of credit professionals, and a massive shift to another model seems unlikely in the short term. However, some volatility in the stock price cannot be ruled out, as these developments mark a break after nearly ten years of smooth sailing.

Fair Isaac is well positioned financially to cope with changes in its market. Debt is under control and operations are running at full capacity. The valuation, which remains high—more than 65x this year's earnings and 55x next year's—still reflects particularly solid fundamentals.

Adrien Chavanne