History of Credit Scores

Your FICO score, which is commonly known as your credit score, will likely follow you throughout your adult life. It's estimated that nearly 75 percent of the adult population in the United State has a credit score. Your credit history likely started when you first took out a student loan or opened your first credit card. Maybe it began when you bought your first car and your parents co-signed. No matter where it began, your credit will follow you as you continue to borrow and spend - even as you consider debt reduction methods.

What is a credit score?

Your credit score is a three-digit number ranging from 300 to 850. You can think of it as a grade - the higher the score, the better for you. In general, consumers with credit scores of 700 or higher are less likely to be denied credit application. These consumers with high credit scores are considered low credit risks and, as a result, receive preferable loan programs and interest rates. A high score means that banks and credit bureaus will trust you more with money because you have established a stellar history of borrowing and repaying.

How credit scores got started

Credit scores in one fashion or another have been around for more than 100 years. Originally, groups of merchants would share information about their customers - sort of a private way of providing personal references. In time, these small groups sharing data became large credit reporting agencies thanks to the advancements of computers.

The Fair Isaac Corporation became the leading credit reporting agency - thus the term FICO score - and remains the primary source for carrying consumer data and reporting consumer information. Every loan you apply for, receive and close is notated in your credit report, and the same goes for credit cards and other consumer information. The bureaus collect data such as how often you make payments on time to if/when you miss payments. Your balances are tracked, your spending habits are monitored and all of these factors impact how your score is calculated.

By the 1960s, the data kept by the credit reporting agencies became controversial. Consumers had no ability to know what was contained in the files about them, and there were accusations that some of the information was incorrect or, even worse, discriminatory. By 1971, the government passed the Fair Credit Reporting Act, which gave consumers the right to view and dispute their credit records. Reform continued throughout the decades. In 2001, consumers gained the right to view their credit scores. Today, you can view your credit report from each of the three credit bureaus, Equifax, Experian and TransUnion, once each year. You also may see your credit scores with each of those bureaus for a small fee (usually $5 to $10 each). Most financial and identity-theft experts recommend that consumers check their credit reports at least once a year to verify that the information is accurate. It's also a good way to take a personal assessment of your financial worthiness.