History of Credit

The History of Credit

In the year 2000 this country and most of the industrialized world switched from the “Old Credit System”, to the new “FICO Credit Scoring System”. The new system is radically different from the old. Most people in the credit business are still using old credit system methodologies because; (1) they do not possess the FICO restoration algorithm, (2) demand for this technology is limited because the general public is unaware of this major transition, (3) using flawed obsolete technology is extremely profitable (4) they are not experts in debt and credit law. Remember, the new credit system is based on complex algorithms that convert your credit report data into a numerical value. Therefore, it takes an algorithm to beat an algorithm.


FICO

In the year 2000 this country switched to the new FICO system. Now, some 14 years later, more than 70% of all Americans are still unaware of how this new system differs from the old. Don't believe me, try this simple proof; find a group of 10 financial professionals and ask them this easy question; What Does FICO stand for? After all, if industry professionals don't know then we know the general population does not know. I guarantee you will be shocked to find that most people have no idea of the name of the company that invented the credit system that currently controls 80% of all financial decisions in every American's life. If they struggle with the name then you don't even have to ask them if they understand how the system works. Now for the one or two that might guess this answer right, ask them how does the FICO algorithm work and what is the algorithm that restores your credit score? In fact, this system is such an enigma, that by simply reading this introductory manual you will instantly become one of this country's leading credit experts. (Notice that no one really claims to be credit experts anymore - most simply claim to be financial experts.)

So what does FICO stand for you ask? Similar to the way Federal Express became known as FedEx, FICO used to be call by its full name of Fair Isaac Co. but now it is simply referred to as FICO. FICO is not a credit-reporting agency! For the first time ever, you can control, restore and or enhance your credit score through our financial literacy program! Through iRestore's training and system, people will be able to master the intricacies of the credit industry, and take control of their personal financial future! From there we will empower an entire group with credit restoration - even raise the aggregate credit scores of an entire city, state and nation.


VantageScore

This is a recent article from Moneyzine.com discussing the recent changes to credit reporting – mainly the introduction of the Vantage Score. This score has been around for years but is know taking on more importance!

National Average Credit Score

The credit industry continues to evolve, and the latest development is the migration from the traditional FICO score to what's called VantageScore. The scale of this score varies from FICO, so the numerical value of what's considered a good score has changed too. In this article, we're going to review some of the recent changes to consumer credit scores. That discussion will start with the numerical scale now used by the three major credit rating agencies as well as the new grading scale. Then we'll talk about the factors that influence scores, which provides insights into improving them too. Finally, we'll finish up with some national and regional statistics for both averages as well as distributions of scores.

Nationwide Credit Score Scales and Calculations

VantageScore was developed by all three credit rating agencies, Experian, Equifax and TransUnion. By agreeing to use the same numerical scale and scoring mechanism, consumers should see more consistency and accuracy in their scores. The new VantageScore also allows for better scoring of "thin file" consumers, which are individuals with a limited credit history.

Numerical Scores and Grading Scale

Credit scores will now range from 501 to 990 under the VantageScore system. This is considerably higher than FICO scores, which ranged from 300 to 850. Consumers with higher scores are thought to have a lower risk of default, and should be offered more attractive interest rates on loans.

To help differentiate between good and bad scores, VantageScores were also put on an academic scale, where:

  • Scores between 900 and 990 are considered an "A"
  • Scores between 800 and 899 are considered a "B"
  • Scores between 700 and 799 are considered a "C"
  • Scores between 600 and 699 are considered a "D", and
  • Scores below 599 are considered an "F"

Note: While the original VantageScore is still used by some companies, VantageScore 3.0 is on a scale that ranges from 300 to 850.

Score Distributions and National Average

Currently, the national average credit score is 736 (as of October 2014). That value is based on research conducted by Experian and is calculated using the VantageScore system. Creditors such as utilities, as well as lenders, may continue to use FICO scores calculated by Fair Isaac when evaluating a consumer's risk of default. Unfortunately, consumers rarely have access to these scores. All three agencies are now providing VantageScores to consumers when offering free credit scores or monitoring services. The table below shows the distribution of credit scores by numerical value as well as grade. For example, the national average of 736 falls into the range of 700 to 799 (Note: The VantageScore 3.0 average is 681). Research indicates 21% of the population falls into that range of scores, and 60% of the population would have a score of 700 or greater.

Credit Score Distribution

Score Grade Population Cumulative
900 - 990 A 14% 14%
800 - 899 B 25% 39%
700 - 799 C 21% 60%
600 - 699 D 20% 80%
550 - 599 F 10% 90%
501 - 549 F 9% 99%

Factors Affecting Credit Scores

There are a total of five factors that go into the calculation of a credit score, but three factors account for 81% of the total:

  • Recent Credit (30%): an indicator of recent checks into the consumer's credit which oftentimes means the consumer is applying for additional credit.
  • Payment History (28%): determined by repayment patterns to creditors or lenders. This component of the score is a reflection of how frequently bills or loans are paid on time.
  • Utilization (23%): how much debt is currently outstanding relative to what creditors believe the consumer can financially handle.

Additional information on this topic can be found in our in-depth article: About Credit Scores.

National Credit Score Facts

The following facts are based on information compiled from a large database of credit scores throughout the United States. As of October 2014, the average FICO score in the United States is around 640, while the median score is closer to 720. As a reminder, the median score is the midpoint in the data, meaning half of the scores are above this value and half are below. Since the average score is considerably lower than the median, it's reasonable to conclude there are a large number of very low scores (well below 640) that pull the average away from the median.

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