MARCH 2004

Fair Isaac Products for Creditors and Consumers

Inspection of the most recent Fair Isaac Annual Report for the fiscal year ending September 30, 2003 reveals impressive results. Net Revenue of $629.3 million in the fiscal year ending September 30, 2003, was up 60% from $392.4 million in the previous year. What explains such a dramatic increase in profits? Did Fair Isaac sell that many more credit score models and credit scores from one year to the next? We know that new account openings did not rise by a corresponding amount.

The answer lies in the firm’s product diversification and enhancement. Basically, the gathering and sorting of credit information is only the first step in enabling credit grantors to reach a decision on an application for credit. FICO has developed software that makes strategic credit and account management decisions rapidly and consistently. Applications for credit are only one piece of the total package of scoring solutions offered these days. Creditors use scoring to set and adjust virtually every dimension of the loan relationship, including the initial application decision, pricing collateral requirements on secured loans, size of credit line on unsecured credit cards, authorization of purchases at the point of sale, decisions to cross-sell other financial products, and the appropriate steps to collect the debt if the account becomes delinquent, or even looks like it might become delinquent. And, FICO has a number of competitors who provide similar services. To a great extent, it appears that credit decisions have been shifted from humans to computers that make "strategic machine solutions." It’s a whole new world out there.

Without a doubt, the advances in risk management technology made possible by firms like Fair Isaac have helped consumer immensely by helping creditors make better decisions at lower cost. Now, Fair Isaac has entered the business of helping consumer directly. If you are shopping for a loan and would like to get the best rate available, given your credit score, you might try myFICO.com. The web site provided by Fair Isaac offers the first online service to enable consumers to instantly compare competing loan rates based on their FICO credit score. Shopping for the "best" rate on a loan through traditional means is often difficult, since some lenders may advertise rates that are available only to the most creditworthy applicants. Now, consumers shopping for a loan can begin by accessing Fair Isaac’s consumer website: www.myFICO.com. Armed with knowledge of their credit score consumers can then compare the finance rates offered by local and national lenders. The initial lineup of lenders participating in the Loan Center offers a wide variety of loans and interest rates.