Where Did The Credit Score Come From?
In today’s day and age, everyone has a credit score following them around. It’s a simple number that sums up your history with money. It often helps you secure a loan, rent an apartment, get a new credit card, and so on. However, the idea of a credit score is a relatively recent invention. It’s only been around since the mid-1950s, after all.
The Dark Ages of Lending
Moneylenders have been around since the start of written history, and they’ve always faced the same problem; how can you tell this person will pay you back? From the days of the Knights Templar to the birth of America as a global power, financiers still hadn’t come up with a real solution to this problem. They conducted interviews, they asked around to get a feel for someone’s reputation, and they made sure they had some form of income, but it was an extremely imprecise process.
Even worse, a lot of the lending process was based on impressions and feelings. It was very likely, even in the early part of the 20th century, for someone to not receive a loan because their demeanor rubbed the lending officer the wrong way. Because when you don’t have hard data to go on, the alternative is gut feelings and gambles.
The Rise of The Credit Score
As Nerd Wallet points out, the credit score, as we know, was started in the 1950s by Bill Fair and Earl Isaac. While it was initially a flop, their automated scoring system underwent several refinements. It continued until it became what we know today as a FICO score. Banks and lending organizations warmed to the idea, buying the system. In 1970 the Fair Credit Reporting Act passed, which limited the specific types of information that determined someone’s credit score.
Currently, credit stems from standardized factors. With more data and a system of risk in place, it’s significantly easier to determine if someone deserves extending credit. Additionally, being denied for loans based on factors that shouldn’t matter (race, sex, gender presentation, religion, etc.) is often illegal under anti-discrimination laws.
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