FICO · Fair Isaac $958.04 -8.26 (-0.85%) 2026-SEP-18 12:47 EST

FICO makes the credit score nearly every U.S. mortgage lender has used. Because lenders had to use it, FICO could raise its price again and again, by about 1,600% over five years by Eisman's count. He calls that abusing a monopoly.

Now the regulator of the big mortgage buyers (Fannie Mae and Freddie Mac) has let every lender use a cheaper rival score, VantageScore, and is publicly attacking FICO. VantageScore already covers about 10% of new mortgages that get bundled and sold to investors, and Eisman expects that share to keep rising. FICO's stock is down 43% this year. He is betting it falls further (he is "short") because he thinks its monopoly is ending.

FICO makes the credit score lenders use for mortgages. All three of them are betting its stock falls. Their complaint is price gouging: FICO raised prices about 1,600% in five years and charges mortgage lenders several times what it charges card or auto lenders, largely because the rules require its score.

Had it raised prices modestly, as Visa and Mastercard do, nobody would have noticed. Instead it drew the housing regulator's fire, and big mortgage players like Rocket, Fannie Mae and Freddie Mac now have every reason to push back.

FICO sells the credit score almost every American mortgage lender uses, and it has raised prices dramatically — the head of the FHFA, the regulator over mortgage giants Fannie Mae and Freddie Mac, says by something like 1,600% over five years, and publicly accuses it of price gouging.

The competing score, VantageScore, was until recently only allowed in a trial program. Now any lender can use it. When a monopoly suddenly faces a cheaper rival that the regulator is openly cheering on, its pricing power is at risk. Eisman has been betting against FICO's stock (short) and says he still likes that bet: "FICO's monopoly is going to break and break badly."

FICO sells the credit score lenders use to decide who gets a loan and on what terms. Carlson doesn't own it, and it's the one Valley Forge reduction he agrees with — it was an oversized holding, so it's the sensible place to raise cash.

It's also his lead example of a hidden risk factor. FICO's revenue depends on how many loans are being written, which depends on interest rates: "as interest rates go up, homes become more expensive, fewer people need their FICO score." Pair that with S&P Global and Moody's — which get paid to rate debt, so they also slow when borrowing slows — and a portfolio that looks diversified by company name turns out to be one bet on the rate cycle.

FICO owns the credit score used across US lending — about as dominant a position as a company can have — yet the stock is down 32% this year, from $2,300 to near $1,000, and fell another 7% on its latest report. Carlson has never owned it and explains why the dominance isn't enough.

Two things are happening. The first is pure valuation: the stock had reached 100 times earnings. That multiple is only survivable while investors are afraid of nothing about the future — the moment any fear appears, a 100× price cannot be defended. The second is that the fear is legitimate. The regulatory protection that guaranteed FICO's position has eroded, and it is now in an open commercial war with the credit bureaus that distribute its scores, which is hurting both sides.

His verdict is not that the business is broken — it still grows profitably — but that it is no longer predictable, and predictability is what the premium was paying for. The market now pays about 22 times forward earnings instead. Given the choice within the same industry, he owns S&P Global instead, because its revenue doesn't depend on any single thing going right.

FICO owns the credit score American lenders use. Eisman is short it — he profits if the shares fall. The thesis is that a rival, VantageScore, is about to take significant share in mortgage lending, where FICO has been able to raise prices at will because there was no alternative.

On the surface the quarter was excellent: profit per share up 42%. But he takes it apart. The growth came from years of price increases plus lower-than-expected costs, not from selling more — and revenue actually missed, with soft guidance for the quarters ahead.

The rule this illustrates is the whole short: "a company whose entire monopolistic business model is potentially under assault can show no signs of weakness." A monopolist is valued on the belief that it fully controls its own pricing and volume. Any evidence to the contrary — a revenue miss, a cautious forecast — is disproportionately damaging, because it is the first data point consistent with the bear case. The stock fell 17% in a day.

FICO owns the credit score US lenders rely on, and Eisman is short it — he profits if the stock falls. It appears here only as context: Equifax is one of the three bureaus whose data FICO's scores are built on, and he notes he'd previously discussed Equifax only "in the context of my short thesis on FICO." The thesis itself (a mortgage-scoring price war with VantageScore) is unchanged from earlier episodes.

FICO owns the credit-scoring standard used across US lending. Eisman is short it — betting the stock falls — and it's one of the hedges he runs against his long book ("my hedges are in my shorts"). He's planning a full episode with Lakshmi Ganapathy of Unicus Research digging into FICO "and one other short," covering both the big-picture and company-specific case. His earlier thesis centered on a pricing war with VantageScore in mortgage credit scores.

Fair Isaac owns the credit score American lenders use. The shares are down more than 30% this year for one specific reason: a US housing regulator has decided that a competing score, VantageScore 4.0, can also be used to approve mortgages. That ended what had looked like an unbreakable monopoly.

The argument for buying anyway has three parts. Lenders are unlikely to drop FICO — they will simply check both, because more information reduces the chance of a bad loan. Banks' internal risk systems, rules and models are all built around FICO scores, and rebuilding them would take years. And a growing part of the company is business software sold to banks for fraud and lending decisions, which is subscription revenue with high renewal rates.

The conclusion is that the fall has taken the shares to their cheapest valuation in a decade.

One thing to hold alongside it: seventeen days earlier the same publisher declined to buy FICO for its own portfolio on exactly this risk, plus the fact that staff share awards equal 22% of profits. This list explicitly covers ideas outside the portfolio, and the share-compensation objection is not repeated here.

Fair Isaac owns the credit score that American lending runs on. Every time a bank checks whether to give someone a mortgage, a car loan or a credit card, it pays Fair Isaac a small fee to pull a FICO score. That happens in about 90% of US lending decisions, and in more than 95% of the mortgage bundles sold to investors. It is described here as a tollbooth on the American financial system — and the description is fair.

The business is extremely profitable as a result. It has the highest margins in its industry, needs almost no capital to run, and has bought back so much of its own stock that the share count has shrunk by 30% in ten years, which quietly increases everyone else's ownership.

So why is it not being bought? Two reasons, and the second is the decisive one.

First, the monopoly may be cracking. A rival score called VantageScore is gaining ground, and artificial intelligence makes building a credible competing score much cheaper than it used to be. The write-up is careful not to overstate this — it says the outcome is uncertain, not that FICO loses.

Second, the cheapness is an illusion once you adjust for how staff are paid. Fair Isaac hands out shares worth 22% of its annual profit as compensation. That is a real cost to existing owners even though no cash leaves the business. Counting it, the shares cost 30.7 times next year's profits rather than the 25.2 times the headline suggests — so what looks like the cheapest the company has been in a decade is not cheap at all.

The refusal comes with a number, which makes it testable: at 25 times profits after the share-based pay is deducted, the shares would be worth $901. They cost $1,230. That is the price at which this becomes a purchase.

FICO is upgraded from Hold to Buy here, and unusually the upgrade comes with the objections attached rather than removed.

The positive case is the price: the shares are down 37% this year, at one of their cheapest valuations ever, against a model fair value about 9% above the market and an expected return of 11% a year. Over ten years the shares have still compounded at nearly 26% annually.

The two risks are named without hedging. First, the company pays its staff heavily in shares, which flatters the reported profit and therefore the apparent cheapness. Second, and more seriously: "the fact that FICO might lose its monopoly" — a US housing regulator has approved a rival credit score for mortgages, which is what caused the fall.

Holding both at once is the point. This is an upgrade on valuation while the central question about the business remains genuinely open, and the write-up says so.

FICO invented and owns the credit score American lenders use. It does not deal with borrowers directly — it licenses the scoring formula to the three credit bureaus, Equifax, Experian and TransUnion, and sells software to banks that automates lending decisions. Every credit card application, car loan and mortgage generates a fee. It is, in the phrase used here, a toll bridge on lending.

Three numbers support the moat. Ninety per cent of the largest American lenders use it. The score is embedded in the plumbing — regulations, bank risk models and software written over decades all assume it. And the return on the capital invested in the business is often above 50%, which is what you would expect from something that sells a formula rather than a product.

The pitch closes by pointing at the share price: "the current selloff could provide opportunities."

One thing a reader should supply for themselves, since this short issue does not: the selloff happened because the US housing regulator approved a competing score for mortgages, taking the shares more than 55% below their peak. The fuller argument for why that matters less than it looks is in the Best Buys issue published two days earlier.

FICO owns the credit score American lenders rely on, licensing it to the three big credit bureaus — Equifax, Experian and TransUnion — and collecting a fee every time a score is pulled. It has been about as close to a legal monopoly as a private business gets.

In April the American housing regulator said it would allow a rival score, VantageScore 4.0, to be used for mortgages. The shares are now more than 55% below their peak, because the thing that made FICO safe — the rules — was the thing that changed.

Three reasons are given for thinking this is an overreaction. First, lenders who add the new score will keep pulling FICO too: in lending, having more information beats swapping one source for another. Second, decades of regulation and banks' own risk models are built around FICO, so genuinely replacing it would mean years of rebuilding systems for no obvious gain. Third, the political complaint was about price, and a score fee is trivial next to a $500,000 mortgage — what lenders actually care about is which score predicts defaults better, and FICO's newest version is still the standard.

The shares are now near their cheapest valuation in a decade, and results reported the same week were strong. The conclusion drawn: "the investment thesis is not broken after all."

FICO is the company behind the credit score lenders use to decide who gets a mortgage — and Eisman has been betting against it ("short") for months. FICO beat earnings and raised guidance, and management insists it won't lose mortgage business to VantageScore (a rival score from the three big credit bureaus). Eisman thinks that confidence "could be terribly wrong."

The reason is price. Regulators are about to approve both scores for mortgages. For every 100 mortgage applications, FICO's new product would collect about $2,049 (a small fee per application plus a big $65 fee on each loan that actually funds), while VantageScore would charge just $99 — a 20-to-1 gap. When the cheaper product is "good enough," that kind of pricing difference is hard to defend. The kicker: FICO is a near-monopoly, yet it builds its score using data from the three bureaus — meaning it now makes money off the very competitors who supply it. Pilots run in 2026, full rollout in 2027.

FICO owns the credit score American lenders use. Almost every credit decision in the country passes through it, and it collects a fee each time.

What earns it a place on this shortlist is the phrase "very linear profits". The new rule in this issue is that predictable growth beats erratic growth, and FICO's revenue is recurring, needs almost no capital to produce, and rises year after year because the company can raise prices without losing customers.

Timing is worth noting: within days of this list being published, a US housing regulator approved a competing credit score for mortgages and FICO's shares fell more than 55% from their peak. The business case survived — the argument in May is that lenders will pull both scores rather than switch — but the "very hard to disrupt" claim was tested almost immediately.

FICO owns the credit score every American lender uses. It licenses the formula to the three credit bureaus and collects a fee each time a score is pulled for a mortgage, a car loan or a credit card. About 95% of the market runs on it.

What real pricing power looks like: mortgage-score revenue rose 52% in a year, not because more houses were sold but because FICO simply charged more, and nobody could go elsewhere. Roughly thirty cents of every dollar of revenue ends up as profit.

The valuation lesson here is the useful part. On the headline figure the shares are at their cheapest in a decade, 24 times next year's profits. But FICO pays its staff heavily in shares, and that cost — equal to a quarter of reported profit — is not in the headline number. Adjust for it and the real multiple is 30 times, not 24. The stated buying level is 25 times after that adjustment, about $901 against $1,058. Two weeks later a US regulator approved a rival score for mortgages and the shares fell hard, which is why FICO reappears on the May Best Buys list.

FICO owns the credit score used across American lending. Every mortgage, car loan and credit card application generates a small fee, and it also sells the software banks use to automate lending and fraud decisions. Ninety percent of top US lenders use it, and the fee is a couple of dollars against a loan worth thousands — which is why it has been able to raise prices for years without losing anyone.

This is the same company Slegers passed on a month earlier for being too expensive. It has fallen further, to near its cheapest valuation in a decade, and now makes the list. He dismisses the AI panic — no bank swaps a legally accepted score for an unproven model to save a few dollars a loan — but is careful to state the risk that is real: VantageScore, a rival built by the three credit bureaus, which the government-backed mortgage agencies Fannie Mae and Freddie Mac have been encouraged to accept. His judgement is that displacement of something this deeply embedded takes many years, and that the fear in the meantime is what creates the price.

Fair Isaac owns the FICO credit score, licensed to the three American credit bureaus, so it collects a small fee every time someone applies for a mortgage, a car loan or a credit card. It also sells the decision software banks use to automate those approvals.

What makes its appearance here worth noting is the sequence. On 1 March this archive published the full bull case for FICO and then declined to buy on valuation. On 19 March it was upgraded only from Sell to Hold. Here, on 31 March, it is one of three companies shown "trading at one of their lowest valuation levels ever" — and the following week it becomes a Best Buy. The chart is the visible step between the pass and the purchase, which is exactly the discipline the March issues keep arguing for: write the case, name the price, and wait.

Fair Isaac owns the credit score. It licenses the FICO score to the three big credit bureaus, and every time an American applies for a mortgage, a car loan or a credit card, it collects a small fee. It also sells the decision software banks use to automate fraud checks and account decisions. Ninety percent of top US lenders use it, returns on capital often exceed 50%, and the real moat is that the score is written into regulations and contracts — not that the maths is secret.

This is the rare case where Slegers writes the full bull argument and then declines. He dismisses the AI fear that lenders will simply generate their own credit scores as "a ridiculous thing if you think about it for a second." But the stock fell from over $2,200 to about $1,400 from a starting point of more than 100 times earnings, and even valuing it on expected 2028 profits it trades at nearly 22 times. Cheaper is not the same as cheap: "I think there are more attractively priced Quality businesses elsewhere." (One month later, after a further fall, FICO becomes a Best Buy.)