Credit Score

The Fair Isaac Corporation, founded in 1956 by engineer Bill Fair and mathematician Earl Isaac in San Jose, California, developed the first credit scoring model for commercial use in the 1960s.1 The model used statistical analysis to predict the likelihood that a borrower would repay a loan. Before it existed, lending decisions depended largely on personal relationships between bankers and applicants.

In 1989, Fair Isaac introduced the general-purpose FICO score, a standardized number ranging from 300 to 850 that summarized a consumer's creditworthiness.2 The three major credit bureaus, Equifax, Experian, and TransUnion, adopted it.

By the mid-1990s, Fannie Mae and Freddie Mac required FICO scores for all mortgage applications they purchased.3 The score became the gatekeeper for homeownership. It also expanded into car loans, credit card approvals, apartment rentals, and insurance premiums. Some employers began checking credit reports as part of hiring decisions.

The formula weighted five factors: payment history (thirty-five percent), amounts owed (thirty percent), length of credit history (fifteen percent), new credit (ten percent), and credit mix (ten percent).4

Critics argued that the score encoded existing inequalities. Communities historically denied access to banking and credit started with lower scores, which then restricted their access to future credit. A 2021 study by the Federal Reserve Bank of New York found persistent gaps in credit scores by race and geography that reflected decades of discriminatory lending practices.5

More than ninety percent of top lenders in the United States use FICO scores in their decision-making.6 A single number, calculated from a proprietary formula, determines whether a person can borrow money, where they can live, and on what terms they participate in the economy.