History of Credit
Scores
The Beginning of the FICO Credit Score
Although the FICO scores
currently in use by the credit bureaus today were developed
in the 1980s, modern day credit scores have been used by various
retailers, insurance companies, banks, credit cards, and other
lending and businesses since around the 1950s. The scores
were usually created using database information from thousands
of customers.
The Importance of the Credit Score
Today, accurate credit reporting
is a big news item. So much rides on a credit score—from
credit card acquisition to home purchases and even employment
in certain fields—that errors on a credit report can
hurt a person’s financial status and future. Insurance
companies even base a person’s insurance risk on their
credit score. You can see how important it is to have accurate
information.
The FICO Credit Score Up Close
Credit scores today use
a more standardized method of reporting, developed by Fair
Isaac and Company at the behest of the three major credit
reporting bureaus—TransUnion, Equifax, and Experian.
Rather than rely solely on a database of thousands of other
people, they factored in a combination of individual behaviors
and trends, such as previous credit performance, length of
time the person has had credit, types of credit, current debt
and loans, and some other small factors, all in a set percentage
of value.
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The VantageScore
System
One of the new kids on the
credit reporting block is the VantageScore system. This was
created by the aforementioned big three reporting agencies.
They began work on this system in 2005 as an answer to the
clamor for more objective and accurate reporting. This scale
is similar to the omnipresent academic grading scale, and
rates credit worthiness from 501-990 in 99 point segments.
Each segment has a corresponding letter grade, with 501-600
generally being an F and 901-990 generally being an A.
The Future of FICO
While FICO is expected to
the the credit scoring standard for the time being, all reputable
analysts agree that in the not too distant future, all three
credit reportin agencies will be moving to the VantageScore
or to a similar system. In fact, one of the three major credit
reporting agencies already is making changes in thsi direction.
Check Your Credit Report -- Regularly
Remember, you should check
your credit report periodically for errors, and report/dispute
those errors immediately to creditors and the reporting agencies—for
best results, check your report from all three agencies.
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