The History of Credit!
There was a time when your character and who you knew determined what you qualified for. Imagine having excellent credit but because the banker didn’t like you they could deny you for the loan you applied for. Even though things like that still occur today it's against the law to discriminate based on your character. Before the 1950’s when the credit score was invented the system of credit left a lot of people out of the world of credit based on gender, race, nationality and marital status. First impressions & personal judgment should not determine what you qualify for, and this issue required the credit market to make a change.
In 1956, there was an engineer by the name Bill Fair and a mathematician by the name Earl Isaac together they created Fair, Isaac and Company. Bill Fair & Earl Isaac created what we know as the credit scoring system today. By 1958, they had begun selling their first credit scoring system.
Today, that company goes by a different name: FICO.
The current FICO scoring system first came out in 1989 after partnering with the 3 credit bureaus. The FICO algorithm is currently our industry standard when it comes to lending. FICO scores range between 300 and 850 and are measured by 5 categories: Payment History 35%, Credit Utilization 30%, Length of Credit History 15%, Types of Credit Used 10%, and Credit Inquiries 10%.
The Three Credit Bureaus
Equifax is the oldest of the three credit bureaus.
Its original name was the Retail Credit Company, was founded in 1899 in Atlanta by brothers Cator and Guy Woolford.
These 2 brothers collected a list of how creditworthy consumers were and then they would sell this information for profit.
They didn’t just collect information on your credit worthiness but also things like marital problems and any other personal details such as political opinions just like a gossip blog.
TransUnion was the 2nd credit bureau that started in 1968 as a railroad leasing organization.
After starting a railroad business they then moved on to become a credit company and collect information instead, because they immediately acquired the Credit Bureau of Cook County.
Transunion is the smallest bureau and is based in Chicago, Illinois.
By 1988, TransUnion was collecting data on consumers in 50 states.
Experian is the youngest of the three credit bureaus.
It was founded in 1996.
The 3 credit bureaus are privately owned and was very unethical with the data they were collecting. Due to this issue the Fair Credit Reporting Act (FCRA) was passed in 1970 and this law required credit reporting bureaus to open up their records to the public; suppress data on race, sexuality and disability; and delete negative information after a specified period of time.
Now FICO® Scores are the most widely used scoring model today and are used by 90% of top lenders. Having accurate credit scores are so important today because not having a good credit score can determine if you are able to purchase a home or rent an apartment, purchase a vehicle, or obtain a personal loan.
Checking your credit reports on a regular basis for accuracy is a must. Looking at the credit bureaus history they are known for collecting information to use against you. Currently due to the CARES ACT you can check your credit reports for FREE from the 3 credit bureaus weekly through April 2021 by going to www.annualcreditreport.com.