The History of Credit Scoring

The credit score system used today has evolved since the 1960s.  It was originally designed to provide lenders with financial profiles on consumers who wished to borrow money.  The lenders biggest concern was:

  • Whether or not an individual had the ability to repay a loan
  • And establish what percentage of risk might be involved

Congress passed the Fair Credit Reporting Act in 1971 to establish guidelines for fair practices in regard to the use of credit scoring.  This law was designed to:

  • Promote accuracy in reporting
  • And protect the privacy of consumers

In light of the increased use of credit scoring and a growing fear of identity theft, recent legislation has been passed to further protect Americans and improve consumer awareness.

The Fair and Accurate Credit Transactions Act of 2003 (sometimes referred to as the FACT ACT or FACTA) was signed by President George W. Bush on December 4, 2003.  FACTA:

  • Amends the Fair Credit Reporting Act
  • Provides each American the ability to obtain one free credit report every 12 months from each of the three main credit reporting agencies (CRA’s)
    • Equifax
    • Experian
    • And TransUnion

Those bureaus have created a central website, www.annualcreditreport.com, to accommodate Americans who wish to obtain copies of their credit report.