When did credit scores become a thing

By Sarah R Reviewed by Izzy M Edited by Nooreen B
Modified on February 20, 2024
When Did Credit Scores Become A Thing

When did credit scores become a thing? The history of credit scoring is actually relatively recent. You’ve come to the right place if you want to learn more about credit scores and their history! 

What Is a Credit Score?

First, it is important to understand what a credit score is. A credit score is a three-digit number indicating an applicant’s credit worthiness for a loan product. Your credit score is essentially your financial identity. Credit bureaus look at consumer credit report data, also known as your credit information, to determine if a particular applicant is an acceptable lending risk for loans and other financial products. 

People can receive a credit score ranging from anywhere between 300 – 850. Generally, credit agencies consider a credit score between 300-579 to be on the lower side. Credit scores between 580-739 are deemed fair, or average. A good credit score is usually around 740-499, and an excellent to perfect credit score is anything from 800-850. 

A History of Credit Scores 

The concept of credit scores originally came around in the early 1800s, when banks and lenders considered the lending risk of extending credit to other businesses. At this time, it was not common for everyday citizens to seek out large loans or have a need for an individual credit score. 

The first credit reporters were simply local merchants. These local credit managers networked and used their connections to gain financial information on businesses and would then sell that information to banks or other lenders looking to extend credit. Over time, local merchants began to combine their efforts to create official credit reporting agencies. In the mid-1800s, the most popular credit reporting agencies were R.G. Dun & Co and the Bradstreet Company. Unfortunately, these national credit reporting agencies were known for implementing extremely unfair credit reporting practices. They would often discriminate based on race, gender, and social connections. These discriminatory practices would later be combated by consumer protection laws like the Fair Credit Reporting Act (FCRA) of 1970 and the Equal Credit Opportunity Act (ECOA) of 1974 in an effort to establish an impartial credit scoring system.

Later on, as everyday citizens began to earn more money and with the popularization of consumer goods, more individuals began to request loan funding. This boost in loan requests created the need for people and companies to have some kind of credit rating. At this time, one of the most popular credit bureaus was the Retail Credit Company in Atlanta, which would later become the credit bureau we know as Equifax. 

The first credit scoring system consisted of merchants doing research on commercial credit applicants on a case-by-case basis. But in 1912, the process became more standardized. To standardize the credit industry, Equifax hired the technology firm Fair, Isaac, and Company (later called the Fair Isaac Corporation) to develop what would be known as a FICO score. Fair, Isaac, and Company was founded by engineer Bill Fair and mathematician Earl Isaac in 1956. In 1989, they launched the official first modern credit scoring system known as BEACON. 

In the 1990s, mortgage lenders were required to obtain credit scores and credit reports for all applicants going through the mortgage lending process. Now, credit scores are required for most types of lending. A student loan, auto loans, and a car loan refinance are just a few examples of loan products that typically require a credit report during the application process. 

What Are the Different Credit Scoring Models? 

Currently, there are three major credit bureaus. Scores from these three credit bureaus come on an: 

  • Experian credit report 
  • Equifax credit report
  • Transunion credit report 

While Experian, Equifax, and TransUnion are the most popular credit reporting agencies, they are not the only ones. Furthermore, there is also not just one type of credit scoring model. Below is more information on credit scoring models you may encounter on a consumer credit report. 

FICO Score

Financial experts usually consider FICO scores the most common credit-scoring algorithm. FICO credit scores use data from all three major credit bureaus. Furthermore, different versions of a FICO score exist for specific loan products. A few examples of these alternative scores are the FICO Auto score and the FICO Bankcard Score.  

VantageScore Credit Score 

Perhaps the next most popular type of credit scores after the FICO score is the VantageScore credit score. This type of credit scoring also uses data from all three of the major credit reporting bureaus. 

PLUS Score

The PLUS score is a specific type of credit score developed by Experian. This score is for consumer education purposes exclusively. 

TransRisk Score

The TransRisk score was developed by TransUnion. This particular credit score ranges from 100 to 900 and is used only to calculate how much of a credit risk someone is. 

Equifax Score

An Equifax credit score is similar to the PLUS Score in that it is for exclusively educational purposes. Equifax developed this score. 

How Does Consumer Credit Scoring Work on a Credit Report? 

One important aspect to note is that credit scores and credit reports are not the same things. A credit score is a piece of information listed on a credit report. Your credit score is simply a three-digit number used to indicate credit risk. In contrast, a credit report has data and details to make those credit score calculations. 

Below is more information about how credit scores work and the key review factors credit bureaus look at when evaluating credit.  

Payment History 

How on time you are with paying your bills has the most considerable impact on your credit score. To keep your payment history in tip-top shape, avoid missed or late payments at all costs. Payment history delinquency, like a missed payment due to credit card issuers, can negatively impact your credit reports for up to seven years! 

Credit History Length

How long you’ve had active credit files and accounts also impacts credit. The longer you have had accounts open, the more experience you handle your finances. Lenders usually feel more comfortable working with people who are familiar with financial accounts and what they require. 

Number of Hard Credit Inquiries 

The number of hard credit inquiries you have on file also has an effect on credit. Lenders typically don’t like to see records of people applying for credit very often because it usually means they are unreliable borrowers. Only apply for loans or credit cards when you really need them to avoid damaging credit. 

Income-to-Debt Ratio

How much money you make versus how much money you owe on various debts makes up your income-to-debt ratio. If your debts are significantly larger than your income, lenders may be wary about extending credit. 

Credit Mix

The different types of debt you have also contribute to your credit score. Credit bureaus want to know how much good debt vs. bad debt you have. Good debts are loans or expenses that give you something in return, like student loans or mortgages. Bad debts are loans that don’t give the borrower much and usually negatively impact their finances, like payday loans

Tips for Improving Your Credit Score 

If you have a bad credit score and want to improve it, there are several things you can do. Improving credit should always be a financial goal because those with good credit scores usually have a much easier time finding great loan deals. Unfortunately, those with a less than perfect credit score are often denied credit when they need to borrow money. 

Check out the helpful tips below to improve your credit score and reap the financial rewards! 

Pay Off Debt Faster 

To improve your payment history on your credit report, try paying off your debts as efficiently as possible. One great tip for paying off your debt faster is to pay more than your minimum amount due on your monthly payments. By paying a bit more, you can cut down on your overall balance, which may lessen future interest rate charges. That way, you can pay off debts quicker and save some money along the way!

Sign Up for Credit Score Rewards Programs 

Your annual credit report traditionally contains information regarding your financial habits regarding lines of credit. But not everybody has a credit card from a credit card issuer. To help people receive benefits on their credit reports from other kinds of positive financial habits, there are some credit score rewards programs to take advantage of. Experian has a system called “Experian Boost.” This system takes other bills, like utility bills or subscription services, into account when calculating your payment history. TransUnion has a similar program called “ECredable Lift.”

Avoid Applying for Unnecessary Credit 

Avoid applying for new credit lines unless it is absolutely necessary. Remember that hard inquiries are tracked on your credit report. Seeing an abundance of credit requests on a credit report may negatively impact future lending decisions. 

Use Resources to Access Free Credit Reports

You can use a free online resource to check your credit score as often as you like. Many credit card and online bank accounts give account holders access to free credit scores whenever they like. By checking your score often, you can see what types of habits are helping or hurting your score. From there, you can make adjustments to your behaviors before things get out of hand!


A History of Credit Scores: When Did They Become a Thing?
What is a Good Credit Score?

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