When did credit scores start?

Fair, Isaac and Company—now known as the Fair Isaac Corporation, or FICO®—introduced the first official consumer credit score in 1989. But the concept of credit reporting, which is used to help calculate credit scores, dates back further.

What you’ll learn:

• Credit scores are calculated using the information in your credit report.
• Credit scores were invented to make the process of evaluating creditworthiness more fair and efficient.
• FICO and VantageScore are the two main credit-scoring companies in the U.S.
• Factors that impact your credit scores include your payment history and credit mix.

Credit-scoring systems were developed to help lenders more objectively evaluate borrowers’ creditworthiness, or how likely they are to meet their financial obligations. 

Before credit scores, credit reporting companies were doing a similar job but with less consistent results. The Mercantile Agency was the first U.S. credit reporting agency and was established in 1841. It collected information about commercial borrowers and lenders across the U.S., but it relied on subjective assessments of things like personal reputation and assets. That left the process open to discrimination related to things like race, gender and class. 

In the 1900s, credit bureaus began collecting information to help lenders evaluate both individuals and businesses. But according to FICO, these companies still struggled with interpreting and comparing their reports. They began working with FICO, then known as a tech company, to develop and use a credit-scoring model. The first universal consumer credit-scoring model hit the market in 1989.

In 1995, Freddie Mac and Fannie Mae, two government-sponsored companies that support the U.S. mortgage market, encouraged lenders to use the credit-scoring model to evaluate mortgage borrowers. That’s generally understood to be the catalyst for wide acceptance of FICO scores and credit scoring in general.

FICO and VantageScore®, which was created by the three major credit bureaus in 2006, are the two credit-scoring companies that provide some of the most commonly used scores.

Credit-scoring companies calculate credit scores using data from the major credit bureaus. As the Consumer Financial Protection Bureau (CFPB) explains, “Your score can differ depending on which credit reporting agency provided the information, the scoring model, the type of loan product and even the day when it was calculated.”

FICO lists these factors that influence your credit score:

• Payment history: How you’ve kept up with debt payments in the past accounts for 35% of the calculations.
• Amounts owed: The amount of total unpaid debt you carry can account for up to 30% of your score. This factor also takes into account your credit utilization ratio, which reflects how much of your available credit you’re using.
• Length of credit history: “A longer credit history will always have a positive effect on FICO scores,” according to FICO. The length of your credit history makes up 15% of your score.
• New credit: This factor accounts for 10% of FICO’s calculations. It takes into account how many times you’ve recently applied for credit. A lot of new hard credit inquiries at once could give a negative impression to lenders.
• Credit mix: Determining 10% of your FICO Score, your credit mix shows how much experience you have with handling different types of credit, such as mortgages, auto loans and credit cards.

Here are the answers to some common questions about the invention of credit scores.

Consumer credit scores started in 1989 as a way to give lenders a more standardized and efficient way to determine an applicant’s creditworthiness. 

Regularly monitoring your credit can help you see where you stand and keep an eye on the factors that impact your credit scores. With CreditWise from Capital One you can access your TransUnion® credit report and FICO Score 8 credit score. It’s free to use, and it won’t hurt your credit scores.