When Did Credit Scores Start? A Brief Look at the Long History

Whether you’re signing up for your first-ever credit card or applying for a mortgage, your credit score plays an important role in determining whether or not you’ll be able to reach many of your financial goals. Your credit report and that three-digit credit score number can also make a big difference in how much interest you’ll have to pay on loans as well as the types of loans or credit cards you’ll qualify for.

Credit reports and credit scores as we know them today are a part of a long history of merchants and lenders collecting information and using it to evaluate whether a potential borrower would be able to pay their loans back in full and on time. 

Select spoke with Josh Lauer, associate professor of communication at the University of New Hampshire and author of “Creditworthy: A History of Consumer Surveillance and Financial Identity in America,” to understand more about how credit scoring and credit reporting came to be, and how both eventually became such an important part of our lives.

In 1841, the Mercantile Agency was founded as one of the first commercial credit reporting agencies, using people known as correspondents to collect information about lenders and borrowers across the country. In a way, it functioned a bit like a modern-day credit reporting agency, collecting information about a businessperson’s marital status, ethnic background, credit history and age, which was then entered into a ledger that was centralized in one location, New York City. 

This type of credit reporting relied on subjective methods of evaluation — in other words, correspondents would provide evaluations of people based on their racial background, gender and moral character.

It wasn’t until the late 19th century, when department stores and mass retailers gained popularity, that consumer credit reporting really took off. 

Some mass retailers were installment houses, which would sell items such as furniture and drugs to customers via installment loans. The retailers needed a way to attract consumers and ensure they would be paid back, so they collected information about their customers and submitted it to a local credit bureau.

While there are three major consumer credit bureaus today — Equifax, Experian and TransUnion — it would in fact take hundreds of years to develop a national centralized credit bureau. 

It would take longer for credit scoring to gain widespread popularity in the U.S., however, as lenders were hesitant to give up their use of character assessments in the evaluation of someone’s creditworthiness. 

Today, FICO scores are considered to be the most widely used type of credit score.

According to Sally Taylor, vice president and general manager of FICO Scores, the company was founded in 1956 and would initially work with business clients to develop credit scoring models that were specific to that company.

A company would hire FICO and then use the its customer files to produce an individualized model, which would then be used to calculate the credit risk level of its customers, explains Lauer. 

In 1989, FICO worked with the national credit bureaus to create a credit scoring model that could be used to evaluate all consumers — this is when the first generalizable credit score was born.

“The idea that there’s a generic model means that lots of different companies can use a credit score for the first time and this makes credit scoring much more accessible and popular among lenders,” says Lauer.

FICO scores were then cemented as a crucial part of the financial decision-making process when Fannie Mae and Freddie Mac started requiring mortgage applicants to submit them in the mid-1990s.

FICO’s credit scoring models have evolved since 1989 to account for ever-changing consumer behaviors. Today, the scores range from 300 to 850, with higher scores indicating a greater likelihood that a consumer will pay back their loans in full and on time.

Unlike credit reporting and credit scoring methods of the past, factors such as race, age, gender and marital status are no longer considered. Instead, the following five factors are used to calculate an individual’s FICO credit score:

1. Payment history (35%): Whether or not you’ve paid past credit accounts on time
2. Amounts owed (30%): The total amount of credit and loans you’re currently using compared to your total credit limit — this is also known as your utilization rate
3. Length of credit history (15%): The length of time you’ve had credit
4. New credit (10%): How often you apply for and open new accounts
5. Credit mix (10%): The variety of credit products you have, including credit cards, installment loans, finance company accounts and mortgage loans

In recent years, there’s also been an effort to include data that’s not typically used to calculate credit scores. *Experian Boost™ was launched in 2019, allowing users to include recurring payments such as utility bills and monthly subscription payments on their Experian credit report.

In the U.S., 26 million Americans are considered to be credit ‘invisible’ due to having a lack of credit history, with the issue affecting more Black, Hispanic and low-income individuals. Experian Boost can be a useful tool for those with poor credit scores — or no credit scores at all — as it allows information regarding on-time payments to be included on their credit reports, which can help bump it up a bit.

For those who want more in depth information on their credit score and to monitor changes to their credit file, consider a credit monitoring service. Both Experian free credit monitoring and Experian IdentityWorks℠ provide you with potential fraud warnings which can help protect against identity theft.

Other free options to view your credit score include CreditWise from Capital One which shows you your VantageScore from TransUnion or Discover Credit Scorecard which shows your FICO Score from Experian.

*Results may vary. Some may not see improved scores or approval odds. Not all lenders use Experian credit files, and not all lenders use scores impacted by Experian Boost.