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.

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.