How Did Credit Scoring Come About?

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Credit scoring came about in the early 1980s with the formation of three separate credit reporting agencies. Find out how the Fair Issac Model is used to determine a person's credit score with information from a financial adviser in this free video on credit reporting.

Part of the Video Series: Credit Cards & Personal Loans
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Video Transcript

Hi. My name is Matt McKillen and I'm with Innovative Financial Group. The question that was posed to me today was how did the credit scoring system come about? Well, there are three different credit reporting agencies. The first is TRW, the second is Trans Union and the third is Experian. All three of these agencies report a score based on what's called the Fair Issac Model. I believe the Fair Issac Model was started in the early 80's. And what it is, it's a score that is based on a couple different, many different factors actually. How much you owe, your debt balance versus your high credit limit, if you've been late, how recent your account has been opened. There's probably twenty or thirty different criteria that effect the scores. And then the odd thing about that is that all three of those bureaus report those models differently. So you can actually have three different scores with those three different lenders. Traditionally as a mortgage arranger, mortgage broker, when we do take a look at someone's credit, we usually take the middle of the three credit bureau scores as our requirement. That way we can throw out the high score and also to offset that, we can throw out the low score. So generally it's the middle score that is what qualifies you for a loan. But again, I think that the scoring system has been in place since the early 80's, it's based on the Fair Issac Model and it's just kind of a criteria that's been put in place to determine credit worthiness based on how your debts are reporting. Again, my name is Matt McKillen and I'm with Innovated Financial Group.

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