FICO Bypasses Credit Bureaus With New Direct Mortgage Score Program

The credit score race took a turn as Fair Isaacs, the company behind the FICO score, launched a new pricing model that will allow mortgage lenders to bypass credit bureaus for credit scores.

“Direct licensing of the FICO Score brings transparency, competition, and cost-efficiency to the mortgage lending process," Will Lansing, CEO of FICO, said in a press release. "This change eliminates unnecessary mark-ups on the FICO Score and puts pricing model choice in the hands of those who use FICO Scores to drive mortgage decisions.”

FICO plans to license its credit scores directly to lenders who then distribute them to borrowers. Credit scores are used by most lenders to determine a borrower's risk.

FICO will now sell its data using two pricing model options: a performance model in which a royalty fee for the FICO Score will be $4.95 per score—that's a 50% reduction in average per-score fees, a reduction achieved by eliminating credit bureau markups. Along with a funded loan fee of $33 per borrower per score.

The second option will allow lenders to continue using the current per-score-only pricing model, which maintains a $10 per-score fee for tri-merge resellers—this is the average price previously charged by credit bureaus for the FICO Score. This model is designed to show no increase in per-score fees for lenders. (Tri-merge reseller refers to a company that combines the credit reports from the three major bureaus into one report, also known as a 3-in-1 credit report.)

FICO's rollout challenges the main credit bureaus: Experian, TransUnion, and Equifax. FICO says it will also offer both FICO mortgage score pricing models to the three nationwide credit bureaus on the same terms.

"What has recently occurred is that FICO has allowed mortgage lenders to obtain credit scores directly from FICO, rather than through the large credit bureaus," Jessica Vance, real estate agent and mortgage broker, tells Realtor.com®. "Theoretically, this could mean a cost savings for consumers. This new way is supposed to reduce the markup of having to go through one of the three bureaus and allows lenders to connect directly to the source. Time will tell if these savings actually do get passed along to the borrowers."

"For homebuyers, it means being more active in questioning lender disclosures, understanding the sources of costs, and watching how lenders evolve credit scoring practices," adds Hannah Jones, senior economic research analyst at Realtor.com.

The move is garnering praise. Bill Pulte, director of Federal Housing Finance Agency, commented on X: "While their decision is a first step, it is appreciated. I encourage the Credit Bureau’s to also take similar creative and constructive actions to make our markets safer, stronger, and more competitive. To that end, 'Vantage Score' should also look at ensuring they are competitive, in every way, including but not limited to costs."

"Borrowers may see benefits in the way of lower costs and better terms. However, any savings may be muted relative to total mortgage costs, unless lenders choose to pass savings on," explains Jones.

What this means for consumers

Consumers may not feel the direct impact, but it's important to keep in mind that credit scores will still be needed to qualify for most mortgages.

FICO scores range from 300 to 850—a higher score shows a person is at a lower credit risk, which is good.

"Consumers absolutely need to be aware of their credit scores through the bureaus," Vance explains. "One important caveat is that the bureaus are not being eliminated. Therefore, the information the bureaus have absolutely will impact a consumer's ability to use their credit."

Federal law allows consumers the right to get a free copy of a credit report every 12 months from each of the three nationwide credit bureaus.

Vance recommends freezing credit when you are not using it or shopping for a large purchase. She explains this helps eliminate the possibility of there being any fraud. 

"It's important to be aware of where your credit score stands because it directly impacts your ability to purchase a home or a car. And determine what rate you may get through a lender or mortgage broker," says Vance.

Vance shares easy tips for improving or maintaining your credit score: paying bills on time every time for all debts, disputing any errors on your credit report, lowering your outstanding debt amounts, not closing old credit accounts lightly (it does affect your credit score), and always paying at least the minimum amount on any debts.