A History of Credit

Credit bureau-based risk scoring systems, their formal title, have been commercially available since the late 1980s. They were initially used by credit card issuers but were quickly adopted by other types of lenders. The last holdout was the mortgage lending environment, but that too changed. In the mid 1990s, Fannie Mae and Freddie Mac informed mortgage brokers and lenders that they would have to begin using credit scores as part of the mortgage decision-making process. 

It was at this point the consumer press began asking questions, in earnest, about credit scoring. And because credit scoring had never been used to any meaningful degree by mortgage brokers or lenders, they too started asking questions about credit scoring. As a result, credit scores landed on the radar of the consuming public. I personally made countless presentations to consumer groups, mortgage banker groups, mortgage broker groups, and any other groups that wanted to learn more about those mysterious three-digit numbers. 

For Sale to Consumers

When the Internet started to become more commonly used by a critical mass of consumers, there were several companies that had the bright idea to sell credit reports and credit scores to consumers online. This happened around the turn of the century, give or take. The credit score had officially evolved from a tool used by lenders to assess risk to a product sold directly to consumers. This “B2C” (Business To Consumer) distribution of credit-related products included the sale of credit reports, credit scores, and credit monitoring services. At this point, the scores being sold to consumers were large of the “educational” variety, meaning they were not the same scores that were being sold to lenders. Educational scores are no longer the scores being provided to consumers online. 

Free Credit Scores 

Roughly 13 years ago, in 2008, the credit score began to evolve yet again. This time credit scores began to change into a free give-away to consumers who were willing to become a registered users of certain websites. Credit Karma, CreditSesame, and Quizzle were among the earliest websites to give away credit scores, and varying amounts of credit report data, to consumers who would sign up at their websites. Today the number of websites that give away credit scores is substantial. 

Additionally, a growing number of banks and credit card issuers are willing to give away credit scores to their customers, normally as part of their monthly statements. In fact, at this point, it’s very easy to find some method where you can see a number of your credit scores at no cost and, at worst, on a monthly basis.

From a risk assessment tool to a fee-based product sold to consumers to a free give-away, the credit score has evolved well beyond its original intended purpose, which was simply to help lenders assess the risk of doing business with borrowers. One final interesting nugget: the credit score hasn’t really changed in its stated purpose. It’s still primarily used by lenders and it’s still designed to predict risk accurately. And collectively, some 20+ billion scores are used every single year, a truly staggering number considering there are only about 220 million people who have a credit report.