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A brief history of the credit score

Adriene Hill Apr 22, 2014
Live on Stage

A brief history of the credit score

Adriene Hill Apr 22, 2014

Numbers are fundamentally utilitarian. They tell us about the economic world around us; both the big, broad economic world, and our own little slices of it.

Sure, the unemployment rate and GDP are important. But on a personal level, few numbers are as significant as the credit score. It’s one of the building blocks of the consumer economy.  “It’s immensely important,” says John Ulzheimer, a credit expert from creditsesame.com, “it controls everything from the terms and interest rates on loans, your access to mainstream loans, what you pay for insurance premiums.”

It’s not overblown, he says, to call the credit score the most important financial metric that we live with.

Some potential partners look at credit scores to decide between dates.  

There’s even a dating service that offers to match you up based on credit scores.  

800-850 is “MARRIAGE POTENTIAL DING DING DING”750-800 is “take him/her home to Mom”700-750 is a “fixer-upper”650-700 is “fun for a night out, maybe, but bring cash”600-650 is “keep lookin’!”anything below 500 is “RUN because they won’t even get a car loan, probably, and how embarrassing will that be at the PTA meetings?”200 is “this person is just pulling your leg and is really royalty”

But it wasn’t that long ago that the credit score we know today, the FICO score, didn’t exist.   The first general-purpose FICO score came along in 1989, only 25 years ago. 

Highlights from the history of the FICO credit score

  • 1958: FICO sends letter to the 50 biggest American credit grantors, asking for the opportunity to explain a new concept: credit scoring. Only one replies.
  • 1970: Congress passes the Fair Credit Reporting Act, encouraging privacy and accuracy in credit reporting
  • 1975: FICO develops first behavior scoring system to predict credit risk of existing customers, for Wells Fargo.
  • 1989: First general-purpose FICO score debuts.
  • 2003: Congress enacts the  “Fair and Accurate Credit Transactions Act of 2003“, which includes the right to free credit reports every year.
  • 2014: FICO claims its scores are used in more than 90% of lending decisions.

Before the FICO score came along, lenders did what they could to determine credit worthiness.  Not all of it good.  According to Frontline:

Credit reporting was born more than 100 ago, when small retail merchants banded together to trade financial information about their customers. The merchant associations then turned into small credit bureaus, which later consolidated into larger ones with the advent of computerization.

By the 1960s, controversy surfaced over the CRAs, according to Chris Hoofnagle of the Electronic Privacy Information Center, a public interest research center. Hoofnagle says the credit reports were being used to deny services and opportunities, and individuals had no right to see what was in their files. In addition, CRAs back then reported only negative financial information as well as “lifestyle” information culled from newspapers and other sources — information such as sexual orientation, drinking habits, and cleanliness.

Many times, getting a loan was about having the right personal relationships. “You almost always did business with a banker who was a friend of the family, or someone with whom you’d golfed, or someone with whom your parents worked, or you went to church with, or were in rotary club with,” said Ulzheimer. “They would make a decision largely on a gut feel.”

It was a system of credit that left a lot of people out of the credit market based on gender, race, nationality and marital status.  

Correction (July 7, 2022): A previous version of this story misstated how some employers use job candidates’ credit information. Under the Fair Credit Reporting Act, employers are barred from accessing an applicant’s credit history without their consent.  

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