Fair Isaacs Fico Score Challenged by Vantagescore

The Fair Isaac’s corporation is synonymous with the Fico credit scoring system. Fair Isaac’s has a market stronghold, which some would consider stranglehold, with 74% of lenders and financial institutions using its scoring system, whilst the remainder recognize its product as the industry leader. Competition is not welcome and Fico guards its position strongly, constantly updating the products which it sells.

In the past the individual credit reporting agencies have attempted to compete with Fico by offering independent scoring systems, but it was only when the three main credit agencies of Experian, Equifax and TransUnion joined forces to create a new scoring product to compete with Fico, that real competition actually emerged.

Between them the three agencies created the VantageScore managed by Vantage Score Solutions, even though each agency already runs its own credit scores. It was a clear move to compete against Fico’s dominance, yet each agency works hand in hand with Fico daily, providing information which is used in the compilation of the Fico credit score.

In 2006, the same year in which the VantageScore was launched, Fair Isaac’s sued Vantage Score Solutions alleging they were engaging in anti-competitive practices which would harm Fico, and unfair practices. Fico did not want the new competition gaining market share, and claimed that their scoring system was a trademark.

In 2009 US District Judge Ann. D. Montgomery presided as Fair Isaacs suit against the three credit agencies ended in failure, and in May 2010 the Judge ruled that Fico had no rights to trademark a score range. Fair Isaacs request for a new trail was dismissed and the Judge decreed that once Fair Isaacs appeal is finished then their trademark of “300-850” is to be cancelled by the US Patent and Trademark Office.

Ironically the four companies involved in the law suit must continue working together whilst the appeal goes through. Vantage believes that their validation in court has strengthened their own position, and by 2011 their scoring system will have been tested by a number of lenders for five years. It if is given the green light of approval then by current lenders who have been testing it, it may well make further inroads into the market and begin to loosen the stronghold Fico currently maintains, particularly if more competitively priced.

Fico have been developing and selling a wide range of new analytical tools aimed at lenders, and they are perceived to have a monopoly as the most recognized name in scoring. Lenders could transition to the Vantage model or use the two scoring systems side by side, but this would only increase consumer confusion. Vantage argue they are giving more choice to customers but the choice is really determined by the lender rather than the consumer, who is probably more aware of the Fico name at this point in time than ever before.

It will be interesting to see if Vantage gains further ground as their recent ‘win’ against Fico has raised business interest, at a time when Fico is increasing its current prices. Much will depend on the three credit agencies holding together as a solid group whilst each maintaining their own individual businesses in direct competition with each other.