Fair Isaac

Thesis

Written 2026-08-23.

FICO owns the number the American mortgage market is built on, and I do not think a competitor prices its way past that. A credit score is not a product anyone shops for on merit. It is written into underwriting policy, into securitisation documents, into what the government-sponsored enterprises will buy. Replacing it means every party in a chain agreeing to change at once. That is the kind of moat that outlives a better mousetrap, and it is why I am willing to own this through a period when everyone is telling me it is about to break.

The competitive picture, stated properly. FICO sells the score. Equifax, Experian and TransUnion are the bureaus that hold the underlying data and distribute that score. They are not FICO's partners in a duopoly — the three of them jointly own VantageScore, which is FICO's only real competitor. In May 2026 the FHFA implemented the credit score competition law and approved VantageScore 4.0 alongside Classic FICO for Fannie Mae and Freddie Mac. VantageScore 4.0 is being offered for as little as $1 a score against roughly $10 for FICO — a 90% undercut, with the FHFA putting the industry saving above $600m in the first year. So the threat is real, it is live, and it comes from a vehicle the bureaus own.

And the results say the moat is holding, in the most demanding way possible. In the quarter reported in August 2026, revenue was $674.2m, up 26%. The Scores segment did $458.9m, up 41%. Mortgage origination revenue rose 97%. Full-year guidance went up, not down: $2.53bn of revenue (+27%) and $42.43 of non-GAAP EPS (+42%).

The detail that makes this a thesis rather than a hope is where that 97% came from. It was price, not volume. FICO put its mortgage score price up, into a market where a competitor at a tenth of the cost had just been cleared for the same use — and revenue went up almost double. That is not a company waiting to find out whether it has pricing power. It is a live experiment in exactly the question the bear case asks, and the first read came back in FICO's favour. Management is backing it too: $1.96bn of stock repurchased at an average of $1,149, close to what I paid.

What I am watching

I am bullish, and this is the position where the bear case is most concrete, so it deserves the most precision.

Score volumes, not score revenue. This is the one that matters, and it is the flip side of what I just argued. If growth is coming from price while unit volumes quietly fall, revenue keeps rising for a while and tells me nothing about whether lenders are leaving. Price-led growth has a ceiling that volume-led growth does not. I want to see the units.

A tenfold price gap is not a normal competitive attack, and it is not a launch promotion either. Equifax has committed to holding the $1 VantageScore 4.0 price through 2027, and TransUnion has cut to 99 cents. So the undercut is contracted rather than temporary, and the bureaus are competing with each other to supply it. Most moats are not tested against a rival at a tenth of the price with a regulator's blessing and a multi-year price guarantee behind it. Switching costs are what stand between FICO and that gap, and I am assuming they are large. That assumption is the thesis.

The FHFA is a political actor. Permitting VantageScore is not the same as mandating it, and the agency that changed the rule once can change it again. The current outcome is close to the good case — competition allowed, nothing compelled.

The market disagrees with me. The stock fell over 9% after that beat. Investors are pricing the threat rather than the results, which is the whole reason there is an opportunity here, and also the reason I could be the one who is wrong.

What would make me wrong

• Mortgage score unit volumes declining while revenue holds up on price.
• A major lender publicly standardising on VantageScore for conforming originations.
• The FHFA moving from permitting an alternative to requiring one.
• Scores segment growth turning negative, at which point the pricing experiment has its answer.

Latest movements

• 2026-08-21 — Opened at $1,176.42.