When Were Credit Scores Invented and How Have They Changed?

Credit scores have been around for a long time, but they’ve changed a lot over the years. In this blog post, we’ll take a look at the history of credit scores and how they’ve evolved.

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A brief history of credit scores

Credit scores are used to assess an individual’s creditworthiness – that is, their likelihood of repaying a loan. They are used by lenders to decide whether or not to offer someone a loan, and if so, at what interest rate. Credit scores were first invented in the early 1950s, and since then, they have undergone a number of changes.

Pre-history: the origins of creditworthiness assessment

The idea of creditworthiness is almost as old as money itself. In ancient times, people who were looking to borrow money from others would often have to provide some kind of collateral — something of value that could be seized if they failed to repay their debt. This could be a piece of land, a valuable object, or even another person (who would then become the borrower’s slave).

The first formal credit scoring system was developed in the early 19th century by Scottish engineer Charles Babbage. Babbage’s system was based on the idea that a person’s creditworthiness could be predicted based on their past behavior. His system was never actually used, but it laid the groundwork for modern credit scoring models.

In the 1930s, U.S. statistician Edgar Thorpe and U.K. engineer William Fairbairn developed a credit scoring system for use by lenders. Their system was based on the information in a person’s credit report, and it was designed to help lenders assess risk and make more informed lending decisions.

In the 1950s, U.S. Consumer Credit Counseling Service (CCCS) developed a credit scoring system that is still in use today. CCCS’s system was designed to help consumers understand their own creditworthiness and make better financial decisions.

In the 1980s, Fair Isaac Corporation (FICO) created the first modern credit score, which is now used by 90% of lenders in the United States. FICO’s credit score is based on information in a person’s credit report, and it is designed to help lenders assess risk and make more informed lending decisions.

Since its inception, FICO’s credit score has undergone several revisions, and it is now used by 90% of lenders in the United States.

The first credit scores

The first credit scores were developed in the 1950s by Fair, Isaac & Co., a company that is now known as FICO. The scores were designed to help lenders evaluate applicants for credit cards and loans.

Initially, credit scores were based on information from a single source: the consumer’s credit report. But over time, FICO has added other data sources to its score calculations, such as utility payments, rental payments, and phone bill payments.

FICO scores are now used by nearly all lenders in the United States to help them make lending decisions. And the scores are not just used for credit cards and loans; they are also used for things like insurance premiums and employment screening.

Credit scores have come a long way since they were first introduced. And they will continue to evolve as new data sources and scoring methods are developed.

How credit scores have changed over time

Credit scores are used to determine an individual’s creditworthiness. They are important for lenders to know whether or not someone is a good candidate for a loan. Credit scores have been around for a long time, but they have changed a lot over the years.

The Fair Isaac Corporation and the FICO score

The Fair Isaac Corporation (now known as FICO) is a company that specializes in credit scoring. It was founded in 1956 by Bill Fair and Earl Isaac, and it is best known for its FICO score, which is a credit score used by lenders to assess borrowing risk.

The FICO score was invented in the 1980s, and it has undergone several revisions since then. The most recent revision was made in 2014. The current version of the FICO score ranges from 300 to 850, with a higher score indicating lower borrowing risk.

The 2014 revision made several changes to the way that the FICO score is calculated. One of the most notable changes is that it now takes into account trends in borrowers’ payments, rather than just their payment history. This means that recent late payments will have a bigger impact on your score than if those same payments had been made a few years ago.

Other changes include the addition of new data sources (such as utility bills and rental payments) and a new scoring model that includes a “depth of credit” component. The depth of credit component rewards borrowers who have a long history of responsible credit use.

The FICO score is still the most widely used credit score in the United States, although there are other scoring models available.

The VantageScore

The VantageScore is a relatively new type of credit score that was invented in 2006. It was created jointly by the three major credit reporting agencies (Equifax, Experian, and TransUnion) in order to provide a more uniform and consistent scoring system.

The VantageScore uses a slightly different scoring range than the FICO score, from 300 to 850. And unlike the FICO score, which only looks at your credit history from the past two years, the VantageScore looks at your entire credit history.

But perhaps the biggest difference between the two scoring systems is that the VantageScore takes into account more than just your payment history. It also looks at other factors like your credit utilization, total debt, and recent inquiries.

So far, the VantageScore has been well-received by both consumers and lenders. And as more and more lenders start using it, it’s likely that we’ll see even more widespread adoption of thisnewer scoring system.

The future of credit scores

Credit scores were invented in the 1950s as a way to measure a person’s creditworthiness. They have since evolved and are now used for things like determining interest rates and loan approval. So, what’s next for credit scores? In this article, we’ll discuss the future of credit scores and how they may continue to change.

The rise of alternative data

In recent years, there has been a surge in the use of alternative data to help assess creditworthiness. This data includes things like utility bills, rental payments and even social media activity. While this data is not yet used in traditional credit scoring models, some lenders are beginning to use it to make lending decisions.

Alternative data can be especially helpful in assessing the creditworthiness of people who don’t have a long credit history. This includes young adults, immigrants and minorities. By using alternative data, lenders can get a more complete picture of someone’s financial history and make better lending decisions.

It’s still unclear how soon alternative data will be incorporated into traditional credit scoring models. But as more lenders begin to use it, it’s likely that we’ll see some changes in the way credit scores are calculated in the future.

The impact of artificial intelligence

Artificial intelligence is being used more and more in the financial sector, and credit scores are no exception. A number of companies are already using AI to help them better understand consumer behavior and to identify patterns that could indicate financial problems.

One example is the use of machine learning to predict when someone is likely to become seriously delinquent on their debt payments. This information can be used to either help prevent the problem from occurring in the first place or to take steps to mitigate the damage if it does occur.

AI can also be used to help identify fraudsters, who are constantly looking for new ways to game the system. By identifying anomalies in behavior, AI can flag potential fraudsters before they cause too much damage.

Overall, AI is likely to have a positive impact on credit scores. By helping to better understand consumer behavior and identify potential problems, AI can help make sure that people have access to the credit they need when they need it.