Page 7 - EQ Magazine Issue #3
P. 7

CREDIT RESOURCE







     A History of Credit




     Source: John Ulzheimer



           redit bureau based risk scoring systems, their         replaced by actual ECOA compliant, commercially
           formal title, have been commercially available         available scores, the same ones that lenders can use.
     Csince the late 1980s. They were initially used by
     credit card issuers but were quickly adopted by other        Free Credit Scores
     types of lenders. The last holdout was the mortgage          Roughly 11 years ago, in 2008, the credit score
     lending environment, but that too changed. In the mid-       began to evolve yet again. This time credit scores
     1990s, Fannie Mae and Freddie Mac informed mortgage          began to change into a free give-away to consumers
     brokers and lenders that they would have to begin            who were willing to become a registered user of
     using credit scores as part of the mortgage decision-        certain websites. Credit Karma, CreditSesame, and
     making process.                                              Quizzle were among the earliest websites to give
                                                                                      away credit scores, and varying
     It was at this point the                                                         amounts of credit report data,
     consumer press began asking                                                      to consumers who would sign
     questions, in earnest, about                                                     up at their websites. Today the
     credit scoring. And because                                                      number of websites that give
     credit scoring had never been                                                    away credit scores is substantial.
     used to any meaningful degree
     by mortgage brokers or lenders,
     they too started asking                                                          Additionally, a growing number
     questions about credit scoring.                                                  of banks and credit card issuers
     As a result, credit scores landed                                                are willing to give away credit
     on the radar of the consuming                                                    scores to their customers,
     public. I personally made                                                        normally as part of their
     countless presentations to                                                       monthly statements. In fact, at
     consumer groups, mortgage banker groups, mortgage            this point it’s very easy to find some method where
     broker groups, and any other groups that wanted to           you can see a number of your credit scores at no
     learn more about those mysterious three-digit numbers.       cost and, at worst, on a monthly basis.

     For Sale to Consumers                                        From a risk assessment tool to a fee-based product
     When the Internet started to become more commonly            sold to consumers to a free give-away, the credit
     used by a critical mass of consumers, there were several     score has evolved well beyond its original intended
     companies that had the bright idea to sell credit reports    purpose, which was simply to help lenders assess the
     and credit scores to consumers online. This happened         risk of doing business with borrowers. One final
     around the turn of the century, give or take. The credit     interesting nugget: the credit score hasn’t really
     score had officially evolved from a tool used by lenders     changed in its stated purpose. It’s still primarily used
     to assess risk to a product sold directly to consumers.      by lenders and it’s still designed to predict risk
                                                                  accurately. And collectively, some 20+ billion scores
     This “B2C” (Business To Consumer) distribution of            are used every single year, a truly staggering
     credit-related products included the sale of credit          number considering there are only about 220
     reports, credit scores, and credit monitoring services. At   million people who have a credit report.
     this point, the scores being sold to consumers were
     largely of the “educational” variety, meaning they were      Disclaimer: The views and opinions expressed in this article are
     not the same scores that were being sold to lenders.         those of the author John Ulzheimer and do not necessarily
     Educational scores are no longer the scores being            reflect the official policy or position of VantageScore Solutions,
     provided to consumers online. They have long been            LLC.


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