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OVERVIEW
Yesteryears' credit reports
Antiquated methods were once employed to gather credit data. Today the process is automated and instantaneous.
Fast track to becoming credit savvy

A colorful history of credit reporting

Credit scores not immediately embraced
The most widely known name in credit scoring got its start about the same time as the credit card. Fair Isaac Corp. was started in 1956 by Bill Fair and Earl Isaac.

"One of their early ideas was to take the new-fangled computer capabilities that businesses had and automate the different parts of the decision process that businesses used. They created the first automated credit scoring system in 1958 for a lender in St. Louis," says Craig Watts, public affairs manager at Fair Isaac Corp.

Watts says their idea to create custom credit scoring solutions for businesses didn't set the world on fire right off the bat.

"They sent a letter to 50 of the top lenders in the country offering them this new technology, this automated credit risk score concept, and they got one response back. Forty-nine lenders said, 'Pfft, who would need that?'" he says.

As it turns out, many businesses would benefit from their product. At the time they would build a credit scoring system customized for each business, but by the late 1980s, Fair Isaac came up with a more efficient system known as the FICO score.

"It was the first general purpose credit risk score for use not just by lenders, but any business that was extending credit," says Watts.

"It was revolutionary in a couple of ways. It was a general purpose risk score, and secondly, it used as close to identical formulas as was possible at each of the three national credit bureaus in order to give lenders a unified view of a person's credit risk across all three of the credit bureaus," he says.

Before that time, lenders could get individual scores from each of the bureaus, but it was up to them to figure out how to put them together to assess a borrower's creditworthiness. And that was difficult, because not all businesses reported everything to all three bureaus.

Not a perfect system
It's a rare person who doesn't have some complaint about the credit reporting system, whether it's a mistaken account, a misspelled address or even more serious problems. But considering the vast amounts of data that are now stored and transferred in the blink of an eye, the credit bureaus are fairly efficient.

Though it's not a perfect system, credit scores and credit reports have kept up with the changes in the way people do business, and they continue to improve the services they offer to consumers and businesses.

See Bankrate's story on the "Evolution of credit cards," for a look at how that industry developed in the 20th century.

-- Posted: Jan. 26, 2009
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