History: Where Did Credit Scores Come From?

We could get into the weeds pretty quickly when looking at the history of credit—but I’ll spare you. Let’s take a brief look at the last 50 years leading up to the current day.

FICO was established in 1956, being called Fair, Isaac, and Company, and proceeded to launch the FICO credit scoring range in 1989. This quantifier allowed institutions to see a consumer’s score based on a scoring system of 300 to 850. VantageScore was created more recently in 2006 by the three leading credit bureaus and, while it follows a slightly different mix than FICO, FICO still dominates the market share.

According to CreditKarma.com, FICO has the following credit scoring mix:

Payment history: 35%
Amounts owed: 30%
Length of credit history: 15%
New credit: 10%
Credit mix: 10%

The Fair Credit Reporting Act (FCRA), Public Law No. 91-508, was enacted in 1970 to promote accuracy, fairness, and the privacy of personal information assembled by Credit Reporting Agencies (CRAs). This protected Americans from who could view the information that large credit reporting agencies like Equifax could release. Equifax was established in 1899, originally called The Retail Credit Company, but rebranded in 1975. TransUnion was established much later in 1968, which, being in the transportation industry, acquired some local and regional bureaus. Talk about diversification! The final credit bureau, Experian, was founded in 1980 but did not come to the states until 1996. As previously mentioned, creditworthiness ranges between 300 to 850. According to Experian, almost ¾ of the population have a good to an exceptional score ranging from 670 – 850.

But why maintain your credit score?

Credit scores may be used for a minimum job qualification, leasing an apartment, interest rates on loans, and rates on insurance. But do you really need one? As I mentioned before, I maintain my credit score due to being in Corporate Finance; however, I would still preserve my credit score even if I wasn’t in this vocation because it creates [Margin.] Creating [Margin] in your finances comes down to being intentional around aspects of your finances—like your credit score. By providing yourself with options, you ensure you aren’t boxed in, and it allows you to breathe easily and choose the right decision for you and your family.

Graph from Experian:

https://www.experian.com/blogs/ask-experian/credit-education/score-basics/what-is-a-good-credit-score/

Credit Reporting: https://epic.org/privacy/fcra/#:~:text=4%2C%202004)-,Introduction,Credit%20Reporting%20Agencies%20(CRAs).

Credit Bureaus: