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Eddy, I’m a new visitor to your blog via billcara.com. I’ve just been reading some of your old posts – I like your writing.

I was wondering how large an impact rising interest rates will have on Fair Isaac’s credit scoring (FICO) business. Fewer consumers will be interested in refinancing their mortgages or taking on consumer debt at rising levels.

Any thoughts?

Thanks for the kind words!

I don’t think the impact will be that large. In fact, if there’s any impact, a credit squeeze could actually place Fair Isaac’s services in greater demand. If credit is tight, a lender wants to be extra-careful will their capital.

The good part of Fair Isaac’s business is that it’s not tied directly to lending, but instead it services the lenders. That helps take a lot of the interest rate risk away from their business. I look at Fair Isaac as a software company, not as a bank or financial institution.

Even if consumer borrowing dries up, lenders will still have a need for Fair Isaac. The company often works in ways you never realize. I’m sure you receive lots of junk mail offering you pre-approved credit cards. The credit card companies aren’t shooting in the dark. Fair Isaac’s logarithms tell them who’s a good risk. Low rates or not, I think it’s safe to assume that the junk mail will keep flowing!

Also, consumer credit-scoring is just one part of Fair Isaac’s business. The company works in sectors like government, insurance and health care. Looking at recent history tells me that Fair Isaac has weathered higher rates quite well. When interest rates jumped in 1994, shares of FIC went up, up, up. When the shares hit their low last year, it was shortly after the Fed started raising rates. Again, the stock doesn’t seem too concerned, so neither am I.

The company will report earnings next Wednesday. The average of eight analysts comes to 49 cents a share. However, the forecasts are in a very tight trading range. The high is 50 cents a share, the low is 48 cents a share. I’m looking forward to another solid quarter.

If you have any stock questions, feel free to e-mail me at eddy@crossingwallstreet.com. I’m happy to give you my opinion on any stock or investing in general; however per SEC rules, I’m not allowed to give personal portfolio advice.

Posted by edelfenbein at October 26, 2005 11:33 PM