FICO to Cut 15% of Staff and Flatten Its Management Ranks

FICO is cutting roughly 15% of its workforce and reducing the number of management layers inside the company. The restructuring arrives as the credit score firm faces its most serious competition in years.

The timing matters. For decades, FICO scores have been the default yardstick lenders use to decide whether to approve a mortgage, auto loan or credit card. That position is now under pressure. Federal housing regulators have moved to allow alternative models, such as VantageScore, for loans backed by Fannie Mae and Freddie Mac, and several large lenders have started testing or adopting those alternatives in their own underwriting.

For a company whose revenue depends heavily on licensing its scores to lenders and credit bureaus, a change in which models lenders are allowed to use is a direct threat. Every lender that adds a second score to its process weakens the pricing power FICO has enjoyed. Cutting headcount and flattening the organization is one way for a company to protect margins while it decides how to respond.

For borrowers, the immediate effect is limited. Scores still draw on the same three credit bureaus, and a mortgage application still depends on the underlying credit reports. Over time, though, a wider field of scoring models could mean that a shopper's outcome depends less on which company's formula a lender happens to use, and that lenders have more room to compare options.

The change also matters to the housing industry. Mortgage servicers, title companies and brokers have spent years building systems around FICO's model. Moving toward competing scores requires technology updates and new validation work, and the speed of that shift will depend on how much lenders and investors trust the alternatives.

Details such as which business units are most affected and when the reductions will take place were not spelled out in the material available for this story.