FICO

Fair, Isaac and Company (now known as FICO) revolutionized the credit reporting industry.  FICO developed a solution through risk model scoring that was both impartial and consistent.  After years of development, the model was released in 1980s.  It was the first version of the rating system we know today as the FICO score.

For every individual who has a credit history, FICO generates a score between 300 (the lowest and worst) and 850 (the highest and the best).  The average U.S. FICO score* is reportedly around 691, with a concentration of about 50% of scores between 650 and 799.

This change in credit review made decisions easier for lenders, but horrible for working Americans. 

Consumers are now judged not as individuals but as numbers.  In addition, the underwriters no longer need to have the in-depth credit knowledge needed to fully analyze a consumer’s true  risk factor.

Minor problems like a $150 collection can now lead to a 100-point drop in a FICO score.

As recent history proves, with the mortgage and economic debacle it is clear that if a full credit review was used, losses could have been significantly minimized.

It is not uncommon for a 17 or 18 year old with one credit card and no prior history to have a high credit score.  This is exactly why serious economist had been warning for decades that FICO was terrible at really measuring the risk of default-something that should surely be at the core of any credit calculations!