For most of human history, getting a loan didn’t involve a number—it involved a relationship. Local bankers knew your name, your family, your work ethic, and they judged risk based on personal knowledge. But as the world became more urbanized and financial systems more complex, banks needed a standardized, impartial way to measure trust.
That’s where the credit score was born.
Early Credit Evaluation: Reputation over Records (1800s–1950s)
In the 1800s, businesses began keeping informal ledgers about customers’ payment habits. Creditworthiness was a mix of gossip, storekeeper memory, and handwritten notes. In the U.S., one of the earliest major attempts to formalize this was the Mercantile Agency, founded in 1841 (later known as Dun & Bradstreet).
By the 1950s, credit had exploded—department stores, car loans, and mortgages became common. But the system still relied heavily on subjective, manual methods, and was often riddled with bias, inconsistency, and discrimination.
The Birth of Credit Bureaus (1960s–1970s)
As demand for credit grew, so did the need for better data. This led to the creation of centralized credit bureaus—organizations that would collect and store detailed credit information for millions of people.
In the United States, three major agencies emerged:
- Equifax (originally Retail Credit Company, 1899)
- TransUnion (1968)
- Experian (global presence beginning in the 1980s)
These agencies began collecting data not just from banks, but also from utility companies, landlords, and other businesses—creating credit reports that lenders could reference.
But still, creditworthiness lacked one critical thing: a numerical score.
Enter the Algorithm: The Creation of the FICO Score (1989)
In 1989, a company called Fair, Isaac and Company (now FICO) introduced the first modern credit scoring system used widely by banks and lenders. This system assigned a three-digit number (typically from 300 to 850) based on a person’s:
- Payment history
- Credit utilization
- Length of credit history
- New credit inquiries
- Credit mix (loans, cards, etc.)
For the first time, decisions were based on predictive data, not personal bias.
Global Adoption & Variations
As the FICO model became dominant in the U.S., other countries began developing or adapting similar systems:
- United Kingdom: Uses Experian, Equifax, and TransUnion; scores typically range from 0–999.
- Canada: Uses Equifax and TransUnion; scores follow the U.S. 300–900 model.
- South Africa: Credit bureaus like TransUnion and Experian operate under strict compliance; credit scores are commonly used for personal loans, car financing, and housing.
- India: The CIBIL score (Credit Information Bureau India Limited) ranges from 300–900.
- China: The Sesame Credit system from Ant Financial goes beyond finance—tracking everything from social media to shopping habits.
Controversies and Challenges
Credit scores have improved efficiency but are not without criticism:
- They can be opaque, with limited understanding of how they’re calculated.
- Mistakes in credit reports are common and can affect major life decisions.
- Critics argue they penalize poverty, as people with no credit history are treated as high-risk—even if they’re financially responsible.
- It also has no provision for people not living with credit or debt. You might hab a billion inthe bank but if you did not buy anything on credit you would be penalized if you would want to rent an apartment.
The Bottom Line
The credit score is a tool—a reflection of past behavior, not future potential. It has revolutionized global lending, but it must be used with wisdom and ethics.
As consumers, understanding how the system works empowers us to take control—and, when needed, break free from its limitations.