During the late 1950s, banks started using computerized credit scoring to redefine creditworthiness as abstract statistical risk.
[5]: 585 During the 1970s and 80s, the credit reporting industry relentlessly consolidated[5]: 598 and moved aggressively into prescreening.
Credit scores are designed to measure the risk of default by taking into account various factors in a person's financial history.
Although the exact formulas for calculating credit scores are secret, FICO has disclosed the following components:[8][9] These percentages are based on the importance of the five categories for the general population.
[8] The makeup factors are limited to the individual's past (and continuing) behavior on credit.
Contrary to common misconception,[13] other financial factors such as age, employment status, assets, or income are not accounted.
If the first credit card company raises the limit to $2,000, the ratio lowers to 30 percent, which could boost the FICO rating.
[22] FICO scores have different names at each of the different credit reporting agencies: Equifax (Beacon), TransUnion (FICO Risk Score, Classic) and Experian (Experian/FICO Risk Model).
[citation needed] The FICO Score XD is made with alternative data and was released in 2016.
[30][obsolete source] Other types of FICO scores cannot be obtained by individuals in a personal capacity, only by lenders.
[32] In 2004, FICO research showed a 4.4% increase in the number of accounts above cutoff while simultaneously showing a decrease in the number of bad, charge-off and bankrupt accounts when compared to FICO traditional.
LexisNexis RiskView score, based on wide-ranging public records, ranges from 501 to 900.
CoreLogic Credco reports on property related public records and its Anthem Credit Score ranges from 325 to 850.
[42] The law requires all three agencies, Equifax, Experian, and Transunion, to provide reports.
This fee is usually $7.95, as the FTC regulates this charge through the Fair Credit Reporting Act.
[44] Instances of illegal behaviors by credit report services have been settled in court such as that of Experian Consumer Direct that was charged with deceptively signing people up for credit report monitoring services that charged them monthly fees.
[45] Credit scores are often used in determining prices for auto and homeowner's insurance.
In 2009, TransUnion representatives testified before the Connecticut legislature about their practice of marketing credit score reports to employers for use in the hiring process.
[50] Credit scoring systems have garnered considerable criticism from various media outlets, debtors unions,[51][52] consumer law organizations,[53] and government officials.
[54] Discrimination against prospective employees, rejection of rental applications, racial bias, poor risk prediction, manipulation of algorithms, and overall immorality are some of the concerns raised regarding the system.
[55] The classification scheme is necessitated by the loss of collective social services and risk.
[58] US credit reporting companies have been accused of illegal behaviors by misstating costs and usefulness of credit scores, tricked consumers into recurring payments, and lying about reports.
[60] Equifax agreed to a settlement of $575 million with the Federal Trade Commission, the CFPB, and states related to a data breach that occurred in 2017 where 147 million people were affected by their personal information being exposed.
[62] This was not the first instance as similar events occurred in 2007 in Colorado where a woman's credit report labeled her as a drug trafficker, and in 2017 in California where multiple people had their credit reports sold to a car dealership that labeled them as terrorists.