FICO’s Royalty Pricing, Role and Adoption in the Mortgage Industry

Executive Summary

On October 30, 2024, we notified the credit bureaus that, for 2025, FICO’s wholesale royalty will be $4.95 per score for mortgage originations. We have chosen to communicate in this forum because there remains a substantial amount of misinformation and confusion around FICO’s role in the mortgage industry, the wholesale royalty we receive, and the downstream markups to the FICO® Score price charged and retained by the credit bureaus and their tri-merge resellers. At this new per-score royalty, the amount collected by FICO will remain a small percentage of the cost of the tri-merge credit report and score bundle (on average approximately 15% of the $80 to well over $100 tri-merge bundle cost), which is itself an exceedingly small share of overall mortgage closing costs. Contextually, as we discussed in our recent RFI Response,[1] with total average closing costs of $6,000,[2] FICO’s share of total average closing costs before this new per-score royalty was only approximately two-tenths of one percent. Even after this change, FICO’s share will remain only approximately two-tenths of one percent. Both before and after our new per-score royalty, the royalties collected by FICO are fair and reasonable, and continue to be the lowest of all individual mortgage closing costs.[3] And, FICO’s per score royalty also compares favorably to the price of individual credit reports collected by the credit bureaus. Notably, the FICO Score is often separated from the credit report post origination, and it is the FICO Score (and not the credit report) that is used extensively to drive models and underpin millions of decisions across the mortgage ecosystem. Given the industry’s longstanding acceptance of individual credit reports routinely priced at dollars per report, it certainly follows that the FICO Score would also be priced at dollars per score and accepted as fair and reasonable.

Numerous market participants derive tremendous value from the FICO Score when making crucial decisions that facilitate the efficient and sound operation of the mortgage industry. FICO Scores are used across the lifecycle of a mortgage loan—from prequalification, application evaluation, and underwriting, to pricing, insuring, securitizing, rating, selling, assessing capital requirements, gauging prepayment risk, and determining credit strategies.[4] As a common framework essential for market participants to communicate regarding consumer credit risk, the FICO Score greatly enhances market liquidity, lowering costs for borrowers, lenders, brokers, correspondent banks, insurers, investors, rating agencies, government-sponsored enterprises (GSEs), regulators, and servicers. When weighing the cost of the FICO Score against the value it provides market participants who rely on it to facilitate the origination of $2 trillion in mortgages every year, the FICO Score is one of the most critical and cost-effective tools used in residential mortgage finance today. FICO Scores increase speed and consistency across the ecosystem, improve the cost and availability of credit, and help potential borrowers demonstrate their credit readiness on an objective and proven basis, which accelerates access to housing free from the influence of subjective human judgment or biases.[5] Despite being the lowest of all individual mortgage closing costs, some have tried to suggest that our FICO Score royalty is a barrier to homeownership—it is not. For just a few dollars per score collected by FICO, the price commonly paid by a consumer for a cup of coffee, credit ready consumers can unlock access to homes worth hundreds of thousands of dollars—a small cost for life-changing benefits to aspiring homeowners.

The FICO Score plays a central role in improving efficiency and supporting the prudent extension of credit across U.S. consumer credit markets. Over the last thirty years, the FICO Score has fundamentally transformed the mortgage industry, enhancing liquidity, expanding fair and objective access to credit, and empowering cost-effective and sustainable homeownership for Americans, which in turn supports the financial and social well-being of families, their communities, and the economy in general. We remain committed to making investments to responsibly drive innovation in our best-in-class credit risk scoring solutions, to expand credit literacy[6]and access for borrowers, as well as helping protect the safety and soundness of the consumer credit markets. Today, where the credit bureaus own and control the data, pricing and distribution of credit scores to mortgage lenders, and VantageScore (our chief competitor), FICO stands apart as an independent credit score provider trusted by the U.S. mortgage industry stakeholders. At $4.95 per score, the royalty collected by FICO for mortgage is entirely fair and reasonable, particularly considering the significant benefits it brings to the industry. 

We welcome the opportunity to set the record straight and provide further transparency and context on this important topic.  

The FICO Score’s Role as the Trusted Independent Standard Across Consumer Credit Markets

For over three decades, a broad range of stakeholders have relied on the FICO Score as a common framework for evaluating and communicating consumer credit risk across consumer credit markets, efficiently enabling billions of decisions across these markets every year in an objective and fair manner. From money center banks, community banks and credit unions, to investors, servicers, issuers, brokers, dealers, mortgage insurers, rating agencies, and others—thousands of organizations have placed their trust in the FICO Score for their mission-critical credit operations. We continue to compete through our cutting-edge research and innovation. From our Classic FICO Score to our latest technological advancements such as FICO Score 10 T and UltraFICO Score, we have helped lenders improve underwriting accuracy, increase operational efficiency, and enhance liquidity, in turn, driving credit availability while lowering overall costs to more households.   

The FICO Score’s significant benefits to borrowers, lenders, regulators, investors, and other stakeholders drove its rapid and widespread adoption by market participants, leading to its establishment as the industry standard measurement of consumer credit risk. Notably, Fannie Mae and Freddie Mac did not establish the FICO Score as the industry standard; the GSEs adopted the FICO Score because it had already been well established by lenders and others as the industry standard across consumer credit markets.[7] In fact, the vast majority, approximately 99%, of FICO Scores used for decisioning across the consumer credit industry are used outside mortgage originations. Total mortgage originations, including GSE-purchased mortgages, constitutes only 1% of all FICO Scores used for decisioning across the consumer credit industry.

Even within the mortgage industry, only a portion of all mortgages are sold to the GSEs. A lender can always choose instead to utilize securitization markets or access programs outside the GSEs’ process, sell the loan to another willing financial institution (e.g., correspondent bank) or investor directly, or fund the loan itself, avoiding the GSE’s FICO Score requirements. Yet, even in the substantial portion of the mortgage industry not subject to the GSE’s requirements, the overwhelming majority of lenders originating those mortgages, and the investors buying and selling them, still choose to use the FICO Score, among other factors, to measure and price consumer credit risk because of its proven value. Whether for prequalification, initial screening, pre-approval, origination or other uses downstream, the FICO Score continues to be used throughout the consumer credit market because lenders and other market participants find sufficient value relative to its price.

Sales, Distribution, and the Evolution of the FICO Score Royalty Structure

Many are surprised to learn FICO does not sell scores, or charge fees, directly to lenders in a typical mortgage transaction in the U.S. Rather, sales and distribution of the FICO Score are controlled by the three primary credit bureaus, Equifax, Experian, and TransUnion—the same credit bureaus that own and control VantageScore, FICO’s principal competitor. The credit bureaus and their tri-merge resellers not only set the price of the VantageScore used in connection with mortgage transactions, but they—not FICO—set the end user price for the FICO Score as well. For those FICO Score sales, FICO generally collects a per score royalty from a credit bureau. However, FICO has no control over the amounts the credit bureaus or their resellers charge lenders for the credit report and score bundle, or for any markup they add to the FICO Score price, let alone fees charged or disclosed by lenders to borrowers for credit reports or scores. The bureaus generally sell the FICO Score with their credit report data to their tri-merge resellers, who then bundle and sell those reports and scores to end users such as mortgage brokers or lenders. From there, after its initial use in origination, the FICO Score is often separated from the tri-merge bundle and shared further downstream with mortgage insurers, investors, GSEs, government agencies, rating agencies, and others. For most of these additional downstream uses, FICO generally does not collect any additional royalty beyond the per score amount it collects for the initial origination use.[8]

FICO historically has been far removed from the many stakeholders relying on the FICO Score for decisions. This is largely due to limitations of the overall distribution structure, and the fact that for decades after the FICO Score’s adoption by the mortgage industry, credit bureau distribution agreements restricted FICO’s ability to engage directly with FICO Score end users. Even in the past year, through engagements and conversations with lenders and other market participants we have come to discover new uses and value of the FICO Score across the mortgage ecosystem. Similarly, through the years, those distribution agreements also prevented FICO from updating the wholesale royalty it collected from the credit bureaus for FICO Score sales. As a result, for decades the royalty collected by FICO for a FICO Score for mortgage remained essentially flat and bore virtually no relation to the considerable value it provided to mortgage industry participants. And, only after FICO was able to revise those distribution agreements, which took years to complete, could FICO finally update the wholesale royalty it collects from the credit bureaus for a FICO Score used in mortgage originations to more closely reflect the value derived from the score. 

The new 2025 royalty of $4.95 per score for mortgage originations will only mark our fourth royalty change in the mortgage industry throughout our nearly 30-year history, apart from customary adjustments for inflation over the last few years. Importantly, after our upcoming royalty change, all amounts above $4.95 per score are collected and retained by the credit bureaus or their tri-merge resellers—not FICO. This means, after this change, any price increase greater than $1.45 per score is solely due to prices set by others who sell and distribute the scores. 

FICO’s Wholesale Royalty has been Historically Underpriced Relative to its Considerable Value

For decades, the FICO Score royalty has been priced significantly below the value that has been derived from the score throughout the mortgage industry. Notably, even after our most recent adjustment, at $4.95 per score, the royalty collected by FICO in the mortgage industry remains only a small fraction, on average approximately 15% of the $80 to $100 (or more) cost of a tri-merge credit report and score bundle, even though the substantial value of the bundle is driven from the FICO Score itself. Still, recent references and comments have attempted to mischaracterize FICO Score pricing as “price gouging,” so-called “junk fees,” or “sharp cost increases of 400%.” These sensational comments may help drive clicks or other attention, but they are misleading and lack appropriate context.

Importantly, the royalty FICO collects for the FICO Score is the lowest among all other components commonly included in mortgage closing costs.[9]  So low, in fact, that even after its new per-score royalty adjustment, FICO’s share of total average closing costs will remain only approximately two-tenths of one percent—essentially the same small percent share that FICO collected for the FICO Score prior to this new per-score royalty. With most individual mortgage closing costs exceeding $100 (some exceeding $1,000 or more) and total average closing costs of approximately $6,000,[10] our $4.95 per score royalty remains very low, particularly when compared to the considerable value it provides market participants who depend on it to facilitate the origination of $2 trillion in mortgages every year. Critically, this value is not only highlighted in the case of loan approval at origination, but also on loan applications that do not get approved, avoiding thousands of dollars (and in many cases hundreds of thousands of dollars or more) in potential losses on single loans.  

The FICO Score’s value is also realized much earlier in the process, with the vital importance of accurately identifying and evaluating qualified applicants upfront, even before the application stage, which allows lenders to more effectively compete in the marketplace and to expand the availability of mortgages to more consumers more efficiently. In addition, the FICO Score provides tremendous value to secondary market participants by standardizing credit evaluation across lenders, geographies, and time. For investors, the FICO Score is the primary factor in determining a loan’s risk profile and cash flow predictability—accurately identifying charge-off and pre-payment risk, or risk of default, through use of a reliable and consistent, common measure of risk across portfolios. The FICO Score also drives lender and investor confidence and overall value in the secondary market through increased stability and liquidity, which enhances the flow of credit at lower costs to consumers.

Every day, the FICO Score plays a central role expanding consumer access to more affordable credit, facilitating the ability of Americans to purchase homes, all for only a few dollars per score collected by FICO. Although the FICO Score drives lower credit costs to consumers, and the royalties we collect are the lowest of all individual mortgage closing costs, there have been suggestions that the FICO Score royalty is somehow an impediment to those aspiring to own a home. On the contrary, for just few dollars per score collected by FICO—the price commonly paid by a consumer for a cup of coffee—credit ready borrowers can receive the life-changing benefits of homeownership, unlocking access to homes worth hundreds of thousands of dollars.

With the considerable benefits to consumers, lenders, and so many other stakeholders downstream in the ecosystem, it is easy to conclude that the FICO Score is objectively no less valuable than the credit report supplied by the credit bureaus. In fact, the score is arguably significantly more valuable. As noted above, soon after its initial use in origination, the FICO Score is typically separated from the tri-merge credit report and score bundle and is then repeatedly and widely used independently from the credit report in underwriting models, pricing models, pre-payment models, insurance models, rating models, collection models, capital requirement models and other uses by thousands of industry participants. The FICO Score is used across nearly all aspects of the complex mortgage financing ecosystem. It is the FICO Score (and not the credit report) that is the grease that helps keep the gears turning throughout both the complex U.S. mortgage ecosystem and the extensive global secondary market for mortgage securities, so they continue operating efficiently.

Given this reality, it is important to note that for years the fee for an individual credit report collected by each of the credit bureaus has been routinely priced at dollars per report, largely accepted by lenders and other participants in the mortgage industry. With so much more widespread use and reliance on the FICO Score relative to the credit report, it stands to reason that the per-score royalty collected by FICO would also be priced at dollars per score and accepted as fair and reasonable.

At just a small percentage of the fees charged by others for the credit report and score bundle, and at least an order of magnitude less than the vast majority of other individual mortgage closing costs,[11] the royalty collected by FICO is fair and reasonable given the significant value the score provides across market participants.

FICO’s Commitment to Drive Enhancements and Innovation in the Mortgage Industry and Beyond

FICO has always embraced competition and remains committed to driving innovation. As a leader in credit scoring innovation, we are proud to have revolutionized the industry to help lenders expand consumer access to credit in a safe, sound, and sustainable manner not influenced by subjective human judgment or biases. In fact, we created the FICO Score to be an objective tool for lenders to fairly and consistently evaluate borrower credit risk and it does not consider prohibited bases such as race, color, sex, marital status, national origin or religion. FICO strives to incorporate the latest technologies, industry best practices, and consumer credit behaviors into its newest product offerings to continue to produce not only the most predictive and innovative solutions in the industry, but solutions that are fair and explainable for consumers. We take tremendous care in designing each FICO Score we bring to market for robustness and longevity, to drive strong and reliable performance over time and across changing economic conditions, all of which are highly valued in financial services such as mortgage originations and servicing, where expected usage lifecycles are long. Lenders, investors, and other stakeholders place substantial trust in the proven track record of the FICO Score, knowing that, once adopted, it will continue to perform at a high level over time.

Our technological advances over the last 30 years have helped shape the consumer credit markets of today—from our early FICO Score versions, which utilize telco and utility data when it is available in the credit report (a feature of Classic FICO Score since the beginning), to more recent versions, starting with FICO Score 9, which utilize rent data when it is available in the credit report. For over a decade, we have worked closely with FHFA, the GSEs, and other mortgage industry stakeholders to promote evaluation and adoption of our latest and most innovative models, from FICO Score 8 and FICO Score 9, which we launched well before the recent credit score evaluation and assessment process established by FHFA,[12] to our latest FICO Score, FICO Score 10 T, which was selected as part of that competitive process for use along with VantageScore for GSE-purchased mortgages, as announced by FHFA in 2022.

FICO Score 10 T, which uses trended data among other enhancements, can enable lenders to increase mortgage originations by up to 5% compared to the Classic FICO Score widely used in the mortgage industry today. With the advanced benefits and value it provides now, even while the industry continues to work through the process of transitioning to the new scores for use for GSE-purchased mortgages, many stakeholders have already begun widely adopting FICO Score 10 T for use in mortgage transactions outside GSE-purchased mortgages.[13] Lenders representing over $244 billion in annualized mortgage originations and servicers representing greater than $1.3 trillion in portfolio servicing have already adopted FICO Score 10 T free of any requirement by the GSEs, or any government agency.

In addition to inventing the FICO Score that modernized the consumer credit market as the most efficient and cost-effective way of evaluating data available in the traditional credit bureau file, FICO pioneered the use of alternative data in credit scoring to further financial inclusion and responsibly expand consumer access to credit. We introduced FICO® Score XD, our first generally available model to include alternative data sources, in April 2016. FICO Score XD considers additional telecom and utility data not present in the traditional credit bureau files. In 2019, we introduced the UltraFICO® Score, the first generally available credit score in the marketplace to use open banking and other data permissioned by the consumer, including cash flow information from checking and demand deposit accounts.  

FICO remains committed to further innovation and to continued investment in research and development to expand and enhance our product offerings to compete in the market and best serve consumers, lenders, and other market stakeholders who have long placed their trust in FICO. In fact, our research and development has recently culminated in exciting new discoveries and innovative product concepts, which we look forward to announcing in the coming weeks.

FICO’s Ongoing Commitment to Consumers and Financial Literacy

FICO’s commitment to innovation and financial inclusion does not end with developing the world’s leading credit scores—it is matched by our commitment to consumer financial literacy, including education on the credit review process and the role played by credit risk scores. For over a decade, we have provided over 260 million consumers access to their scores for free through partnership with 200+ banks and credit unions in our FICO Score Open Access initiative. During this time, we have extended free financial education and credit counseling through a network of over 160 partners, reaching over 250,000 consumers. And, with FICO’s Score a Better Future and Score a Better Future Fundamentals programs, we have continued to supplement these initiatives with additional free consumer financial education material and courses, to reach thousands more. For nearly 15 years now, we have proudly worked with FINRA to assist over 200,000 military members with access to financial resources, including free access to FICO Scores. Importantly, with the introduction of myFICO.com almost 25 years ago, we began our journey of serving consumers by providing over 1.3 million people with a wealth of credit score educational tools and content, including through the launch of our free FICO Score offering in early 2022. Now, all Americans can receive their available FICO Score and credit report for free, updated monthly, with no financial strings attached. With each of our many important initiatives, FICO remains committed to expanding financial literacy and driving credit awareness to more people through education and empowerment. 

Closing

For more than 30 years, FICO Scores have served as the independent industry standard across multiple markets and economic cycles. Today and every day, we work to build the most competitive and best performing products in the industry, while continuing to afford our clients with the peace of mind that they can trust our products to provide high value, and a safe, reliable, and consistent measure of consumer credit risk. In doing so, the FICO Score provides confidence, stability and efficiency throughout the mortgage industry, and enhances liquidity through securitization and loan sales, which in turn expands credit availability and lowers overall mortgage costs to households—all of which provides significant benefits to consumers, taxpayers, lenders and others in the marketplace.

At a small percentage of the overall credit report and score bundle, and only a fraction (nearly two-tenths of one percent or less) of total average closing costs of approximately $6,000, the $4.95 per score royalty collected by FICO is entirely fair and reasonable and the FICO Score continues to deliver incredible value as the most cost-effective tool for assessment of consumer credit risk. The FICO Score is not incidental to the mortgage transaction—it serves as a critical tool for borrowers, lenders, brokers, correspondent banks, insurers, investors, rating agencies, GSEs, regulators, and servicers, across the entire lifecycle of a mortgage loan. As the most trusted and proven representation of borrower credit risk—driving market efficiencies and lower costs to borrowers, lenders, and other stakeholders, while accelerating access to homeownership for Americans free from the influence of subjective human judgment or biases—the FICO Score has democratized and expanded access to credit while underpinning the safety and soundness of the home mortgage industry, offering protection to homeowners, investors, taxpayers, and the economy as a whole. Our consumer outreach and initiatives, along with our steadfast commitment to fostering innovation across consumer credit markets and building the best, most predictive risk assessment used by lenders, mortgage insurers, rating agencies, investors, and other market participants, serve as FICO’s guiding principles as we continue forward.