When Were Credit Scores Invented? A History

Credit scores have a significant influence on our individual and national financial landscapes. Even though they are a part of everyday life, it’s probably not often we consider the origins and history of credit scores.

From the 19th-century roots of private credit to the establishment of credit bureaus and the introduction of systems like FICO^® in 1989, we explore the evolution that shapes our modern financial world.

When Did Credit Scores Start?

FICO^® Scores were introduced in 1989 by the Fair Isaac Corporation, now known as FICO^®. The FICO^® Score was the first industry-standard consumer credit scoring system. Before FICO^®, individual companies calculated credit scores based on the loan a consumer applied for.

Early Credit Reporting

In the past few hundred years, the rules and regulations surrounding credit have changed dramatically. There’s a long history of credit that reflects the evolution from individual-based private credit in the early 19th century to the establishment of the first credit bureau.

In the early 19th century, mortgage lenders believed lending was a risky exchange, and instead resorted to individuals providing private credit. By 1830, institutions like the Building and Loan Society offered 15-year variable interest rate mortgages. Borrowers paid $7 to $11 monthly, settling the total at the term's end, with some mortgages lasting just 3 to 6 years. In 1899, the Rail Credit Company (RCC) was founded out of Atlanta, Georgia, known as the first credit bureau of our nation. The RCC gathered credit, political, social information, and personal rumors, which garnered its fair share of controversy, ultimately resulting in government restrictions.

Landmarks In The History Of Modern Credit Scores

Credit scores and credit bureaus are important mechanisms that our country's economy relies on. However, these systems weren’t established overnight. There's a long history behind these financial institutions that we use so much today.

The 1970 Fair Credit Reporting Act (FCRA)

Created in 1970, the Fair Credit Reporting Act (FCRA) was made to ensure fairness and accuracy for how lenders, employers, and third parties access. The FCRA today mandates transparency in major credit bureaus like Equifax®, Experian™, and TransUnion®, with federal agencies such as the Consumer Financial Protection Bureau (CFPB) and the Federal Trade Commission (FTC) enforcing its provisions. The act extends to specialty agencies and regulates the handling of medical, check-writing, and rental history, emphasizing the fair, accurate, and private treatment of sensitive consumer credit information.

The FCRA remains a crucial protector of credit scores today, maintaining transparency for all parties involved. By regulating access to consumer credit information, the FCRA ensures reliability and integrity of credit information and credit scores.

The Introduction Of Credit Bureaus

The Rail Credit Company changed its name to Equifax^Ⓡ in 1975. Additionally, over the course of the 1960s, local credit bureaus started to combine into a larger network of bureaus. And in part thanks to the passage of the FCRA, the three major credit bureaus were born — Experian^®, TransUnion^TM, and Equifax^®. These agencies collaborated with FICO^® to develop what we now know as a credit score, with the first widely used FICO^® Score introduced in 1989. These standardized credit reporting practices and scores are important for lenders to assess risk and make informed lending decisions while providing consumers with a standardized metric to understand and manage their creditworthiness.

How Credit Scores Are Used Today

Credit scores are standard in today’s financial environment, as they help lenders determine whether or not borrowers are creditworthy. FICO^® and VantageScore^®, the two main scoring systems, are essential resources for this assessment. The 1989-founded FICO^® Score is widely used by lenders as an official indicator of creditworthiness, while the VantageScore^®, founded in 2006, provides a consumer-friendly model for understanding credit. Both approaches take into account variables such as credit mix, credit use, and payment history. However, differences exist in their specific models and weightings of factors, leading to variations in scores. These standardized scoring systems enable lenders to make informed decisions, while individuals can use them to comprehend and enhance their credit profiles.

The Bottom Line

From private credit in the 19th century, to modern day credit bureaus and standardized scoring systems like FICO^® in 1989, credit scores have evolved tremendously and continue to do so. Established in 1970, The Fair Credit Reporting Act (FCRA), continues to protect and regulate credit scores, while emphasizing fairness and transparency. Today, understanding the history and mechanisms of credit scores is crucial to facing your credit future with confidence.

Download the Rocket Money℠ app for a convenient way to access your VantageScore^® for free, empowering informed financial decisions.