FICO Credit score History

Do you know Fair Isaac? The Fair Isaac Company is the creator of the FICO score: that little three-digit number that determines whether you’re getting a decent rate on your credit cards, home loan, or car loan. It also affects your ability to get car insurance, home insurance, and even a job. How can that be?

The Fair Isaac Company was founded in 1956 to provide data to help businesses make smarter decisions. In 1995, Fannie Mae and Freddie Mac gave the FICO score a major credibility boost when they recommended that lenders use the FICO score to qualify mortgage applicants. Imagine having no idea why your loan was rejected, other than something called a FICO score wasn’t good enough. Only recently was the Fair Isaac Company even willing to share the main categories they use to calculate your score. The exact formula used to calculate your credit score is still a closely guarded secret. But thanks to internet lenders publishing some of the FICO guidelines in the early 2000s in response to public outcry over the secrecy, Congress eventually made it a law that people should have access to their scores.

More than 65% of lenders now use FICO scores to ensure they can get back the money they borrow. If there’s even the slightest possibility of you paying late or your loan defaulting, those lenders will raise your interest rates or even deny you credit. In the next series of articles, I’ll cover the five factors that affect your credit score: payment history, amounts owed, length of credit history, new credit, and types of credit.

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