Background
A Brief History of Credit Scores
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Money makes the world go round, right? So let's break down the different "eras" of money lending.
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B.C.S. (Before Credit Scores)
Long before credit bureaus and banks existed, the concept of creditworthiness was determined by a far more informal process. Lenders relied solely on past credit history and character judgments (i.e. word of mouth, personal opinions, and first impressions) as a way to determine whether individuals were financially responsible enough to receive a loan.
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Although this sounds relatively easy, in reality, the process was highly subjective, which meant that those who were deserving of credit weren’t always granted their due. Over time, lenders began developing a scoring system, but it was still incredibly difficult to remain completely impartial.
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C.S.E. (Credit Score Era)
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In 1956, engineer William “Bill” Fair and mathematician Earl Isaac worked together to create Fair, Isaac, and Company (FICO) in order to create and implement an impartial, standardized credit scoring system. Together, Fair and Isaac created the FICO score.
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As the business of lending money evolved, so did the FICO score. Currently, there are at least 16 versions of the FICO score, with each version improving upon the same base function in order to better fit the adapting needs of its users.
Even though new companies have since emerged with their own versions of a credit score, the FICO score is still the best-known and most widely used credit score.
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The Modern Age of Credit
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Nowadays, credit scores and reports are constantly being used to measure creditworthiness. There are three main credit reporting agencies that are used nationwide: Experian, Transunion, and Equifax. These agencies -- also known as credit bureaus -- have no input in credit decisions or recommendations; instead, their only job is to collect, store, and provide information for credit reports. When you apply for credit, a potential lender will typically request a copy of your credit report and credit score from the agency(ies) of their choice.
