The growing importance of a solid credit score

Jill on Money

The use of credit scores and reports dates back nearly 60 years. In 1956, engineer Bill Fair and mathematician Earl Isaac formed the Fair Isaac Corporation (FICO) on the premise that data could be mined and used to inform business decisions. Two years later, the company rolled out its first credit scoring system.

FICO honed the score and currently sells it to banks, insurers, retailers and credit card companies. As the company declares on its website, the use of its data and mathematical algorithms “to predict consumer behavior has transformed entire industries.”

The current FICO score ranges from 300 to 850. Borrowers with scores above 750 are generally considered excellent, while scores below 650 are considered poor. The three most important factors that determine your score are: payment history (and especially paying bills on time); total debt outstanding, which takes into account how many accounts you have and how close you are to your credit limit; and the number of inquiries made into your credit file. Inquiries are broken into “soft” (for preapproved offers; for insurance or employment purposes; and for when you check your own credit report or score) and “hard” (like when you are