The Evolution of Credit Scoring
If credit scoring were never invented then we probably wouldn’t have so many lending products on the market today. As the result of the integration of credit scores into the three large databases of Experian, Equifax and Transamerica. In the mid 1990s, consumer credit boomed as a business in the 1990s.
Credit scoring allowed lenders to make more loans and with more confidence and this is partly how the collective debt in America got as large as it is today. It is estimated to 44 trillion, which is 63 times higher than it was in 1957 (before the implementation of FICO credit scoring.) This means that every man, woman and child in theory will be in debt during their lifetime to the tune of $147,312.
During the 1990s –
• The all over total of consumer loans including auto loans, credit cards and non mortgage debt doubled in the decade from 1990 to 2000 to $1.7 trillion
• Credit card debt triples between 1990 and 2002 from $173 billion to $661 billion.
• Home Equity lending soared from $261 billion in 1993 to more than $1 trillion from 1990 to 2000
The consumer and lender’s love affair with credit cards got another big boost in 1995 when the country’s two biggest mortgage-finance companies – Freddie Mac and Fannie Mae. The frenzy of lending to North Americans really began when these two financial powerhouses recommended lenders use FICO (Fair Isaac Credit Organization) credit scores to help them more rapidly assess a borrower’s suitability for a loan.