Truth and Fairness in Credit Scoring
As automated credit scoring as well as the use of FICO became more widespread, consumers began growing uncomfortable that a 3 digit number was having such a profound impact on their financial lives. Mortgage denials, skyhigh credit card rates, you name it…they all had their roots in one’s credit report.
Initially, Fair Isaac, which invented the FICO score and can be credited with the origins of automated credit scoring, was hesitatant to disclose much information regarding their credit scoring algorithm. It was and still is a proprietary formula which required substantial research and ongoing effort to perfect (and it’s always evolving).
They also felt that if consumers knew precisely how their credit score was computed, this symmetry of information would lead to a degradation in the quality of the credit scoring algorithm’s predictive ability.
In 2000, E-Loan relased FICO scores to over 25,000 people before their ability to provide this information was removed by Fair Isaac. Although this only lasted for about one month, the seed for a revolution in credit information accessibility had been planted. Legislation was drafted less than two years later (Fair Credit and Reporting Act) and Fair Isaac disclosed 22 factors which affect an individual’s credit score. In 2003, further legislation was passed which required disclosure.
Ready to see your credit score?