The History of Credit Scores: When & Why They Were Invented

You might wonder why your credit score matters so much. Have you ever thought about where your credit score came from? Have you ever wondered why financial institutions have started using them?

Credit scores didn’t always exist. Before credit bureaus and modern credit scoring, lending decisions were often based on personal trust or gut feelings.

In this guide, you’ll learn exactly when credit scores were invented and why they changed lending forever. You’ll also learn how your credit score works today and what this means for your financial future.

What Is a Credit Score and Why Does It Matter?

A credit score is a number that shows lenders how likely you are to repay debt. It helps financial institutions decide if they can trust you with money. The higher your score, the safer you look to lenders.

Credit scores range between 300 and 850. Good credit usually starts around 700. A good score can get you lower interest rates on credit cards, personal loans, or an auto loan. Bad credit makes loans expensive or hard to get.

Your credit score matters because lenders use it for big lending decisions. It affects your chance to get a new credit card, a line of credit, student loans, installment loans, or even a mortgage. Your score can even impact credit limits at department stores or retailers!

The Origins of Credit Scores: A Brief History

Credit scores are newer than you might think.

Early on, retailers and department stores in New York City tracked consumer credit. They kept notes on customers, recording who paid on time and who didn’t. These notes formed the first credit files. But the system wasn’t perfect. Credit information stayed local and scattered.

In the early 1900s, the first credit bureaus appeared. These credit reporting agencies gathered consumer credit data from banks, lenders, and retailers. By sharing credit information, lenders could judge credit worthiness without personal biases. It made consumer credit safer and smarter.

In 1956, Bill Fair and Earl Isaac created the Fair Isaac Corporation. Their goal was simple: use numbers and facts to measure credit risk.

The result was the first credit scoring system, the FICO score. It used payment history, length of credit history, types of credit, and new credit accounts to give lenders clear assessments. Retailers in both the US and Canada began using the new system.

This early history of credit scores changed the way lenders looked at borrowers. It made credit decisions fairer. And it made good credit valuable.

The Evolution of Credit Scoring Models

Credit scores keep changing. In the beginning, lenders relied on their judgment to make lending decisions. They often used biases or simple guesses. The arrival of credit scoring models replaced guessing with facts.

The FICO score changed lending forever. It used clear rules and assessments to measure creditworthiness. The score considered payment history, length of credit history, credit mix, and new credit accounts. It gave lenders a fair picture of each borrower’s credit risk.

In 2006, the three major credit bureaus—Equifax, Experian, and TransUnion—created the VantageScore model. VantageScore improved on earlier scoring models. It used advanced algorithms and alternative data to make scores accurate and unbiased. This model could better predict how likely someone was to repay debt, even if their credit file was short.

Technology made credit scoring quicker and less prone to bias. Credit reporting agencies now gather data instantly in compliance with Canadian laws like the Personal Information Protection and Electronic Documents Act (PIPEDA).

They track consumer credit from credit cards, auto loans, personal loans, and student loans. This speed helps lenders quickly set interest rates or approve a new line of credit.

Today’s scoring models remove biases like marital status or opinions. They rely on facts and clear information. Modern credit scoring uses data to make better decisions. It gives everyone a fair shot at building good credit.

Credit Scoring Myths: What People Often Get Wrong

Lots of advice floats around about credit scores. Some of it helps, but much of it isn’t true. Here are some common myths cleared up.

Many people think checking their credit score hurts it. That’s not true. When you check your own score, it's a soft inquiry. Soft inquiries don’t affect your credit report or lower your score. Only hard inquiries—checks by lenders when you apply for loans or credit cards—impact your credit score.

Another myth is that you have just one credit score. In reality, there are several. Major credit bureaus like Equifax, TransUnion, and Experian each calculate your credit differently. Slight variations in your scores are normal because each agency uses different data and scoring models.

Some think your income shapes your credit score. It doesn’t. Credit bureaus care about how well you manage debt, not your paycheck. Paying on time and keeping balances low matters most.

Finally, paying with cash doesn’t build credit. Cash payments aren’t reported to credit bureaus. Payments must appear on your credit report to build your credit history.

Knowing the truth about these myths helps you manage your credit score wisely and confidently.

FAQs About When Credit Scores Started

Can I have more than one credit score?

Each credit bureau calculates your score differently. Equifax, TransUnion, and Experian can each give you a different number.

How often should I check my credit score?

Check it regularly. Once a month is good. Regular checks help catch errors early and keep you aware.

Do student loans affect my credit score?

Paying student loans on time builds your credit history. Late payments can lower your score.

Can I get a loan in Canada without a credit score?

Yes. Some lenders, like My Canada Payday, offer loans without credit checks. They consider other factors, making it easier if your credit history is limited.

What credit score do I need to get a mortgage in Canada?

Most Canadian lenders prefer scores around 650 or higher. A higher score improves your chances and gets you better rates.

Can I build credit without a credit card?

Paying utility bills or installment loans on time can help build your credit. Some lenders report these payments to credit bureaus.

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