Credit scores were invented in 1989.
Credit scores existed for decades before 1989. What changed that year was the introduction of the FICO score, the first generic credit scoring system. Previously, lenders developed and used their own individual systems to calculate borrowers’ credit scores.
For years, claims that credit scores did not exist before 1989 have circulated online. Examples of the claim have appeared on social media platforms including Facebook (archived) and Reddit (archived).
Some (archived) social media posts (archived) additionally claimed that, before 1989, lenders would approve mortgages without subjecting prospective homebuyers to credit checks.
(Facebook user Josh Rincon)
It’s true that 1989 was an important year in the history of credit because it marked the introduction of the generic FICO credit score, as we’ll explain below. However, by that point companies had already — for decades — been using numerical credit scores based on credit reports and the statistical analysis of borrowers’ past behavior.
It’s also not true that prospective first-time homebuyers could get a mortgage without going through a credit check process before 1989 — although the details of that process were not as streamlined as modern credit checks.
As a result, we’ve rated this claim as a mixture of true and false information.
Credit Scores Before and After 1989
Credit has existed in human societies for centuries, and throughout history lenders have used various methods to attempt to minimize their risk.
The modern concept of a credit score — a numerical rating, based on statistical data, of a borrower’s likelihood of repaying a loan — emerged in the 1950s, when Fair, Isaac and Company (now Fair Isaac Corp., or FICO) began to use statistical methods to determine credit risk on behalf of its clients in the consumer-finance industry.
Josh Lauer, a professor of communication at the University of New Hampshire and the author of the 2017 book “Creditworthy: A History of Consumer Surveillance and Financial Identity in America,” explained over email that “all credit scores were custom products” between the late 1950s and the late 1980s.
For example, Lauer said, “Bank of America and Chase each had their own custom scoring models, each developed separately using their own customer data. Since small differences between different borrower populations could result in significant risk calculation errors, each lender studied its own population of borrowers.”
Although credit scoring systems existed before 1989, that year was still a milestone in the credit world. In short, 1989 is when Fair Isaac — the same company that pioneered the use of statistics in assessing credit risk in the 1950s — introduced the first generic statistical credit score, known as the FICO score.
Still one of the major U.S. credit scoring systems (another model, VantageScore, also is used by the three main credit bureaus — TransUnion, Equifax and Experian), the FICO score assigns borrowers a three-digit number between 300 and 850 based on factors including the length of their credit history, their track record of making payments and the amount of debt owed.
In contrast to the earlier custom models, Lauer explained, generic models like FICO “used massive credit bureau data sets — in essence, everyone’s customers — which allowed for generalization between different lenders.”
Mortgage Lenders and Credit Scores
According to Lauer, mortgage lenders first began to embrace statistical credit scoring in the early 1990s, soon after the introduction of the FICO score.
In 1995, the Federal Home Loan Mortgage Corporation (commonly known as Freddie Mac) and the Federal National Mortgage Association (commonly known as Fannie Mae) both directed their lenders to begin factoring statistical credit scores into their decisions for all new mortgage applications. (Neither Freddie Mac nor Fannie Mae offers mortgages directly to borrowers. Instead, both buy and sell existing mortgages on the secondary market.)
Due to the collective size of Freddie Mac and Fannie Mae, the two companies’ endorsements of generic statistical credit scores like the FICO score meant the new system “was institutionalized almost overnight” in the mortgage industry, according to Lauer.
However, Lauer said, “mortgage applicants absolutely went through a ‘credit check’ process” even before mortgage lenders embraced generic credit scores in the 1990s. The difference was that lenders previously “relied on credit reports that documented an applicant’s borrowing history, payment records, employment, and other assets and liabilities.”
Mortgage lenders also used nonstatistical methods to calculate numerical “creditworthiness scores” before 1989. As an example, Lauer pointed to a rubric the Federal Housing Administration developed in the 1930s for rating borrowers based on factors including “Reputation” and “Attitude Toward Obligations.”
These nonstatistical methods, which typically included interviews with prospective lenders, might seem less impersonal than statistical credit scores. However, as Lauer noted, this system largely depended on credit officers’ personal judgement, which “opened the door to discrimination” based on race, sex and other factors.
In Summary …
Statistical credit scores existed for decades before 1989. What changed that year was the introduction of the FICO score, the first generic credit scoring system. Previously, lenders developed and used their own individual systems to calculate borrowers’ credit scores.
That means that lenders couldn’t pull ready-made credit scores from a centralized database until 1989. However, they still based their decisions about loan offers and rates on custom-built scoring systems as well as prospective borrowers’ credit reports.
