FICO

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How FICO rewrote its risk factors

10-K ITEM 1A · FY2024 → FY2025

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New in FY2025

This business strategy is designed to enable us to increase our business by selling multiple connectable and extensible products to clients, and to allow our clients to more easily expand their usage and the use cases they enable over time.
The market may be unreceptive to our general business approach, including being unreceptive to our cloud-based offerings and unreceptive to purchasing multiple products from us.
Factors that might affect the market acceptance of these products and services include the following: • changes in the business analytics industry; • changes in technology, including increased use of artificial intelligence (“AI”); • our inability to obtain or use key data for our products; • saturation or contraction of market demand; • loss of key customers; • industry consolidation; • failure to successfully adopt cloud-based technologies; • our inability to obtain regulatory approvals for our products and services, including credit score models; • the increasing availability of free or relatively inexpensive consumer credit, credit score and other information from public or commercial sources, including those that use AI technologies; • failure to execute our selling approach; and • inability to successfully sell our products in new vertical markets.
Our ability to increase our revenues depends to some extent upon introducing new products and services, upon introducing enhancements and improvements to existing products and services and upon entering new markets for products and services.
If we are unable to successfully develop, or if the marketplace does not accept, new, enhanced or improved products and services, or if we experience defects, failures or delays associated with the introduction of new, enhanced or improved products or services, our business could suffer serious harm.
Our revenue growth and the success of our business strategy depend upon our ability to enhance and improve existing products and services, and to continue to introduce new products and services that keep pace with technological developments, satisfy increasingly sophisticated customer requirements and achieve market acceptance.
If we are unable to develop new, enhanced or improved products and services, including those that utilize AI technologies, or if we are not successful in introducing such products and services, we may not be able to grow our business or growth may occur more slowly than we anticipate.
These errors could affect the ability of our products to work with other hardware or software products, could delay the development or release of new products or new versions of products, and could adversely affect market acceptance of our products.
Our use of AI in the development of our products and our incorporation of AI features into some of our products could introduce errors, defects, or delays impacting our ability to successfully develop new products.
We also believe that much of the future growth of our business and the success of our business strategy may depend on our ability to continue to expand into newer markets for our products and services.
If these newer markets are not willing to adopt our products and services, either as a result of the quality of these products and services or due to other factors, such as economic conditions, our revenues may decrease.
In addition, the U.S. and other key international economies periodically experience downturns in which economic activity is impacted by falling demand for a variety of goods and services, increased volatility of interest rates, fluctuating rates of inflation, restricted credit, poor liquidity, reduced corporate profitability, volatility in credit, trade policies and tariffs, equity and foreign exchange markets, bankruptcies and overall uncertainty with respect to the economy.
During fiscal 2025, 92% of our revenues were derived from sales of products and services to the banking industry.
The potential for future stress and disruptions, including in connection with geopolitical tensions, military conflicts, trade policies and tariffs, the level of inflation and the volatility of interest rates, presents considerable risks to our businesses and operations.
While we expand our sales into international markets, the risks are greater as some of these markets have experienced and may in the future experience substantial disruption and we are less well-known in them.
Other changes implemented by FHFA, Fannie Mae or Freddie Mac could also affect the demand for FICO Scores and thus could have similar adverse effects on our business, including, for example, the change announced by the FHFA Director in July 2025 permitting mortgage originators to choose the credit score they submit with mortgages delivered to Fannie Mae and Freddie Mac or a potential future change permitting mortgage originators to underwrite loans using credit scores from fewer than three national consumer reporting agencies.
The ability of our FICO Score to compete effectively in the U.S. mortgage market may be constrained by the pricing and other business practices of the consumer reporting agencies, which could have a material adverse effect on our revenues, results of operations and stock price.
Our regional and global competitors vary in size and in the scope of the products and services they offer, and include: • in-house analytic and systems developers; • developers and providers of neural networks, machine learning, and AI systems; • fraud solutions providers; • scoring model builders; • providers of credit reports and credit scores, including consumer reporting agencies; • software companies supplying predictive analytic modeling, rules, or analytic development tools; • entity resolution and social network analysis solutions providers; • providers of customer engagement and risk management solutions; • providers of account workflow management software; • business process management and decision rules management providers; • enterprise resource planning and customer relationship management solutions providers; • business intelligence solutions providers; • providers of automated application processing services; and • third-party professional services and consulting organizations.
For example, our Scores segment relies on, among others, Experian, TransUnion and Equifax.
Failure of our existing and future distributors or partners to generate significant revenues or otherwise perform their expected services or functions, demands by such distributors or partners to change the terms on which they offer our products, or our failure to establish additional distribution or sales and marketing alliances, could have a material adverse effect on our business, operating results and financial condition.
In addition, certain of our distributors and partners presently compete with us and may compete with us in the future, either by developing competitive products themselves or by distributing competitive offerings.
The extent to which our intellectual property rights can be protected differs by jurisdiction, and is rapidly evolving with respect to AI technologies.
For example, AI technologies, including generative AI, and their use are currently undergoing rapid change.
Our future success will depend, in part, upon our ability to: • innovate by internally developing new and competitive technologies; • use leading third-party technologies effectively; • continue to develop our technical expertise; • anticipate and effectively respond to changing customer needs; • initiate new product introductions in a way that minimizes the impact of customers delaying purchases of existing products in anticipation of new product releases; and • influence and respond to emerging industry standards and other technological changes, including relating to AI.
Acquisitions involve significant risks and uncertainties, including: • our ongoing business may be disrupted and our management’s attention may be diverted by acquisition, transition or integration activities; • an acquisition may not further our business strategy as we expected, we may not integrate acquired operations, systems or technology as successfully as we expected or we may overpay for our investments, or otherwise not realize the expected return, which could adversely affect our business or operating results; • we may be unable to retain the key employees, customers and other business partners of the acquired operation; • we may have difficulties entering new markets where we have no or limited direct prior experience or where competitors may have stronger market positions; • our operating results or financial condition may be adversely impacted by known or unknown contingent liabilities, other liabilities or claims we assume in an acquisition or that are imposed on us as a result of an acquisition, including claims by government agencies or authorities, terminated employees, current or former customers, former stockholders or other third parties; • we could incur material charges in connection with the impairment of goodwill or other assets that we acquire; • a company that we acquire may have experienced a security incident that it has yet to discover, investigate and remediate, may have other cybersecurity vulnerabilities, or may have unsophisticated security measures, any of which we might not identify in a timely manner and which could spread more broadly to other parts of our company during the integration effort; • we may incur material charges as a result of acquisition costs or costs incurred in combining and/or operating the acquired business that are greater than anticipated; • we may not realize the anticipated increase in our revenues from an acquisition for a number of reasons, including if a larger than predicted number of customers decline to renew their contracts, if we are unable to incorporate the acquired technologies or products with our existing product lines in a uniform manner, if we are unable to sell the acquired products to our customer base or if contract models of an acquired company or changes in accounting treatment do not allow us to recognize revenues on a timely basis; • our use of cash to pay for acquisitions may limit other potential uses of our cash, including stock repurchases, and retirement of outstanding indebtedness; and • to the extent we issue a significant amount of equity securities in connection with future acquisitions, existing stockholders may be diluted and earnings per share may decrease.
We are exposed to additional cybersecurity threats as we continue to migrate our software solutions and data from our legacy systems to cloud-based solutions.
In addition, increased attention on and use of AI increases the risk of cyber-attacks and data breaches, which can occur more quickly and evolve more rapidly when AI is used.
Further, use of AI by our employees, whether authorized or unauthorized, increases the risk that our intellectual property and other proprietary information will be unintentionally disclosed.
Cybersecurity breaches, including those that impact our third-party vendors and other security providers, could expose us to a risk of loss, the unauthorized disclosure of consumer or customer information, significant litigation, regulatory fines, penalties, loss of customers or reputational damage, indemnity obligations and other liability.
Malicious third parties may also conduct attacks designed to temporarily deny customers, distributors and vendors access to our systems and services, and may demand payment by us in order to restore access.
Our ability to provide reliable products and services to our customers depends on the efficient and uninterrupted operation of our and our external service providers’ data centers, information technology and communication systems.
The failure to obtain certain forms of data from our customers or others for our use in product development could harm our business.
In most cases, this data must be periodically updated and refreshed to enable our products to continue to work effectively in a changing environment.
Third parties have asserted copyright and other intellectual property interests in this data, and these assertions, if successful, could prevent us from using this data.
The labor market for these individuals, particularly in the complex disciplines of enterprise platform sales, software engineering, data science, AI and cybersecurity, is very competitive due to the limited number of people available with the necessary skills and understanding to build, sell and support our complex products and it may become more competitive with general market growth.
We have experienced past difficulty in recruiting and retaining qualified personnel, especially in these intensely competitive and technical skill areas, and we may experience future difficulty in recruiting and retaining such personnel, at a time when we may need additional staff to support expanded research and development efforts, new customers and/or increased customer needs.
Limitations imposed by current and changing immigration laws in the U.S. and abroad and the availability of visas in the countries where we do business could hinder our ability to attract and retain necessary qualified personnel and harm our business and future operating results.
If new laws, regulations or other governmental action affecting the FICO Score or our other products, services and solutions are implemented or carried out, it could adversely affect our business and results of operations.
There has been increased regulatory focus in the U.S. related to the transparency and fairness of certain fees charged to consumers in connection with the closing of a residential mortgage loan, including fees for credit reports and credit scores.
If new laws, regulations or other governmental action limit the fees that can be charged for credit scores by us, consumer reporting agencies, or end users of our FICO® Scores, or that place other restrictions on the sale or distribution of credit scores, our ability in the future to increase pricing for FICO Scores used in mortgage originations may be impacted and thus the revenues and profitability of the FICO Score may be adversely affected and the growth of our Scores business may be constrained.

and 16 more.

Gone since FY2024

This business strategy is designed to enable us to increase our business by selling multiple connectable and extensible products to clients, as well as to enable the development of custom client solutions and to allow our clients to more easily expand their usage and the use cases they enable over time.
The market may be unreceptive to our general business approach, including being unreceptive to our cloud-based offerings, unreceptive to purchasing multiple products from us, or unreceptive to our customized solutions.
Factors that might affect the market acceptance of these products and services include the following: • changes in the business analytics industry; • changes in technology; • our inability to obtain or use key data for our products; • saturation or contraction of market demand; • loss of key customers; • industry consolidation; • failure to successfully adopt cloud-based technologies; • our inability to obtain regulatory approvals for our products and services, including credit score models; • the increasing availability of free or relatively inexpensive consumer credit, credit score and other information from public or commercial sources; • failure to execute our selling approach; and • inability to successfully sell our products in new vertical markets.
If we are unable to successfully develop new products or new versions of products, or if we experience defects, failures or delays associated with the introduction of new products or of new versions of products, our business could suffer serious harm.
Our growth and the success of our business strategy depend upon our ability to develop and sell new products and new versions of products, including the development and sale of our cloud-based product offerings and our scoring solutions.
If we are unable to develop new or enhanced products, or if we are not successful in introducing new or enhanced products, we may not be able to grow our business or growth may occur more slowly than we anticipate.
Software errors in our products could affect the ability of our products to work with other hardware or software products, could delay the development or release of new products or new versions of products, and could adversely affect market acceptance of our products.
Our ability to increase our revenues will depend to some extent upon introducing new products and services and upon introducing enhancements and improvements to existing products and services.
If the marketplace does not accept these new, enhanced or improved products and services, our revenues may decline.
To increase our revenues, we must enhance and improve existing products and services, and continue to introduce new products and services that keep pace with technological developments, satisfy increasingly sophisticated customer requirements and achieve market acceptance.
We believe much of the future growth of our business and the success of our business strategy will rest on our ability to continue to expand into newer markets for our products and services.
We cannot assure you that the marketplace will accept these products and services.
If our current or potential customers are not willing to switch to or adopt our new products and services, either as a result of the quality of these products and services or due to other factors, such as economic conditions, our revenues will decrease.
In addition, the U.S. and other key international economies have periodically experienced downturns in which economic activity is impacted by falling demand for a variety of goods and services, increased volatility of interest rates, fluctuating rates of inflation, restricted credit, poor liquidity, reduced corporate profitability, volatility in credit, equity and foreign exchange markets, bankruptcies and overall uncertainty with respect to the economy.
During fiscal 2024, 92% of our revenues were derived from sales of products and services to the banking industry.
The potential for future stress and disruptions, including in connection with geopolitical tensions, military conflicts, the level of inflation and the volatility of interest rates, presents considerable risks to our businesses and operations.
While we expand our sales into international markets, the risks are greater as these markets are also experiencing substantial disruption and we are less well-known in them.
Other changes implemented by FHFA, Fannie Mae or Freddie Mac could also affect the demand for FICO Scores and thus could have similar adverse effects on our business, including, for example, a change permitting mortgage originators to underwrite loans using credit scores from only two of the three national consumer reporting agencies (a “bi-merge report”) rather than from all three (a “tri-merge report”).
Our regional and global competitors vary in size and in the scope of the products and services they offer, and include: • in-house analytic and systems developers; • neural network developers and artificial intelligence system builders; • fraud solutions providers; • scoring model builders; • providers of credit reports and credit scores; • software companies supplying predictive analytic modeling, rules, or analytic development tools; • entity resolution and social network analysis solutions providers; • providers of customer engagement and risk management solutions; • providers of account workflow management software; • business process management and decision rules management providers; • enterprise resource planning and customer relationship management solutions providers; • business intelligence solutions providers; • providers of automated application processing services; and • third-party professional services and consulting organizations.
Our Scores segment relies on, among others, Experian, TransUnion and Equifax.
Failure of our existing and future distributors to generate significant revenues or otherwise perform their expected services or functions, demands by such distributors to change the terms on which they offer our products, or our failure to establish additional distribution or sales and marketing alliances, could have a material adverse effect on our business, operating results and financial condition.
In addition, certain of our distributors presently compete with us and may compete with us in the future, either by developing competitive products themselves or by distributing competitive offerings.
For example, artificial intelligence technologies, including generative artificial intelligence, and their use are currently undergoing rapid change.
Our future success will depend, in part, upon our ability to: • innovate by internally developing new and competitive technologies; • use leading third-party technologies effectively; • continue to develop our technical expertise; • anticipate and effectively respond to changing customer needs; • initiate new product introductions in a way that minimizes the impact of customers delaying purchases of existing products in anticipation of new product releases; and • influence and respond to emerging industry standards and other technological changes.
Acquisitions involve significant risks and uncertainties, including: • our ongoing business may be disrupted and our management’s attention may be diverted by acquisition, transition or integration activities; • an acquisition may not further our business strategy as we expected, we may not integrate acquired operations or technology as successfully as we expected or we may overpay for our investments, or otherwise not realize the expected return, which could adversely affect our business or operating results; • we may be unable to retain the key employees, customers and other business partners of the acquired operation; • we may have difficulties entering new markets where we have no or limited direct prior experience or where competitors may have stronger market positions; • our operating results or financial condition may be adversely impacted by known or unknown claims or liabilities we assume in an acquisition or that are imposed on us as a result of an acquisition, including claims by government agencies or authorities, terminated employees, current or former customers, former stockholders or other third parties; • we could incur material charges in connection with the impairment of goodwill or other assets that we acquire; • a company that we acquire may have experienced a security incident that it has yet to discover, investigate and remediate which we might not be identify in a timely manner and which could spread more broadly to other parts of our company during the integration effort; • we may incur material charges as a result of acquisition costs, costs incurred in combining and/or operating the acquired business, or liabilities assumed in the acquisition that are greater than anticipated; • we may not realize the anticipated increase in our revenues from an acquisition for a number of reasons, including if a larger than predicted number of customers decline to renew their contracts, if we are unable to incorporate the acquired technologies or products with our existing product lines in a uniform manner, if we are unable to sell the acquired products to our customer base or if contract models of an acquired company or changes in accounting treatment do not allow us to recognize revenues on a timely basis; • our use of cash to pay for acquisitions may limit other potential uses of our cash, including stock repurchases, and retirement of outstanding indebtedness; and • to the extent we issue a significant amount of equity securities in connection with future acquisitions, existing stockholders may be diluted and earnings per share may decrease.
We may be exposed to additional cybersecurity threats as we migrate our software solutions and data from our legacy systems to cloud-based solutions.
In addition, increased attention on and use of artificial intelligence increases the risk of cyber-attacks and data breaches, which can occur more quickly and evolve more rapidly when artificial intelligence is used.
Further, use of artificial intelligence by our employees, whether authorized or unauthorized, increases the risk that our intellectual property and other proprietary information will be unintentionally disclosed.
Cybersecurity breaches could expose us to a risk of loss, the unauthorized disclosure of consumer or customer information, significant litigation, regulatory fines, penalties, loss of customers or reputational damage, indemnity obligations and other liability.
Malicious third parties may also conduct attacks designed to temporarily deny customers, distributors and vendors access to our systems and services.
Our ability to provide reliable products and services to our customers depends on the efficient and uninterrupted operation of our data centers, information technology and communication systems, and increasingly those of our external service providers.
The failure to obtain certain forms of model construction data from our customers or others could harm our business.
In most cases, these data must be periodically updated and refreshed to enable our products to continue to work effectively in a changing environment.
Third parties have asserted copyright and other intellectual property interests in these data, and these assertions, if successful, could prevent us from using these data.
The labor market for these individuals, particularly in the complex technical disciplines of software engineering, data science, and cyber security, is very competitive due to the limited number of people available with the necessary technical skills and understanding to support our complex products and it may become more competitive with general market and economic improvement.
We have experienced past difficulty in recruiting and retaining qualified personnel, especially in these intensely competitive technical skill areas, and we may experience future difficulty in recruiting and retaining such personnel, at a time when we may need additional staff to support expanded research and development efforts, new customers and/or increased customer needs.
Limitations imposed by immigration laws in the U.S. and abroad and the availability of visas in the countries where we do business could hinder our ability to attract necessary qualified personnel and harm our business and future operating results.
If new laws, regulations or other governmental action affecting the FICO Score or our other products and services are implemented or carried out, it could adversely affect our business and results of operations.
There has been increased focus in the U.S. by federal regulators such as the CFPB and the FTC, as well as the current presidential administration and some states, related to the transparency and fairness of certain fees charged to consumers and the impacts on the costs of consumer goods and services.
For example, in May 2024, the CFPB launched a public inquiry to obtain information on fees charged by providers of mortgages and related settlement services in the U.S. residential mortgage market, including fees for credit reports and credit scores.

and 18 more.

Sentence-level comparison of Item 1A in the two most recent 10-Ks (FY2024 ↗, FY2025 ↗). A reworded sentence counts as one dropped and one added, so heavy edits read as low “kept”. Headings and page furniture are stripped; nothing is summarised by a model.

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