FICO Bull Case Theory: A Strong Investment Opportunity Despite Regulatory and Competitive Pressures

Fair Isaac Corporation (FICO) has a dominant position in the US credit system, with its FICO score serving as the benchmark for lending decisions across major financial institutions. The company generates 60% of its revenue from its Scores segment and has powerful network effects, switching costs, and regulatory inertia. Despite emerging competition from VantageScore, FICO has responded with FICO Score 10 T, which has rapidly gained adoption. The company's strong financial performance, including a 20% YoY increase in revenue and 47% surge in GAAP EPS, provides a compelling long-term investment opportunity.

Fair Isaac Corporation (FICO) has expanded its suite of credit scoring models with the introduction of FICO® Score 10 BNPL and FICO® Score 10 T BNPL, which incorporate Buy Now, Pay Later (BNPL) data. This innovation reflects the growing significance of BNPL loans in the U.S. credit ecosystem and aims to enhance financial inclusion FICO Unveils Groundbreaking Credit Scores That Incorporate Buy Now, Pay Later Data^[1].

FICO Score 10 BNPL and FICO Score 10 T BNPL are designed to provide lenders with a more comprehensive view of consumers’ repayment behaviors, enabling them to make more informed decisions. The new scores were developed following a year-long joint study on BNPL data, which revealed that aggregating separate BNPL loans can capture predictive signals effectively FICO Unveils Groundbreaking Credit Scores That Incorporate Buy Now, Pay Later Data^[1].

The inclusion of BNPL data is particularly beneficial for consumers whose first credit experience is through BNPL products, as it helps lenders evaluate their credit readiness more accurately. This innovation supports FICO’s mission to expand financial inclusion by making credit more accessible to a broader range of consumers FICO Unveils Groundbreaking Credit Scores That Incorporate Buy Now, Pay Later Data^[1].

Despite the overall national FICO score dipping slightly due to inflation and higher interest rates, the average score remains near historical highs, indicating that many consumers' credit health remains strong. However, the average FICO Score is a lagging indicator, and there are risks to the future average credit score, particularly for Gen Z adults facing student loan pressure FICO: Consumers Feel Stress of Inflation, Interest Rates^[2].

FICO's strong financial performance, with a 20% year-over-year increase in revenue and a 47% surge in GAAP EPS, underscores its robust position in the credit scoring market. Despite competition from VantageScore, FICO's FICO Score 10 T has rapidly gained adoption, further cementing its dominance in the U.S. credit system FICO Unveils Groundbreaking Credit Scores That Incorporate Buy Now, Pay Later Data^[1].

FICO Score 10 BNPL and FICO Score 10 T BNPL are expected to be available in the Fall of 2025, initially offered side-by-side with existing versions of the FICO® Score at no additional fee. This approach ensures a seamless transition and added value for lenders FICO Unveils Groundbreaking Credit Scores That Incorporate Buy Now, Pay Later Data^[1].