Lenders and merchants have been using credit reports for thousands of years, which is basically information about a persons borrowing and spending habits that is shared among businesses. However, the credit score was not developed until 1958, when the Fair Isaac Corp implemented a system to analyze credit reports and rate them on a numerical scale.

As is the case with a credit report, credit scores are intended to provide a non-discriminatory means of evaluating a persons creditworthiness, so race, gender, and religion do not come into play.

Since the development of the Fair Isaac Corp credit scoring system, which is called a FICO score, several other companies have developed their own credit scoring system, but none have become more popular than the FICO Score.

While each of the three credit reporting agencies are required to provide a free copy of your credit report every year, there is no such requirement for your credit score. Instead, consumers must purchase their credit score, which typically costs between $6 and $16. Each of the credit reporting agencies also offer a proprietary credit score, but these scores are different than the credit score offered by the Fair Isaac Corp.

How is a FICO Credit Score Generated?

There are a number of different factors that go into a FICO credit score, which is based off of information from a each of the three credit reporting agencies. A persons FICO score considers several different factors and rates people on a scale between 300 and 850, with 850 being the highest credit score possible.

The following factors are considered when generating a credit score:

Payments:

• Payment history for credit cards, loans, mortgages, finance company accounts, and retail accounts
• Amount of money that is delinquent and how long this money has been delinquent
• Number of debts that have been successfully paid off
• The number of items that were paid late
• Any bankruptcy, items sent to collection agencies, lawsuits, liens, wage adjustments, and any other lawful judgments, as well as the time since these events have occurred.

Length of Recorded Credit History:

• How long each credit line has been open, as well as how active the account is

Different Types of Credit:

• How many different accounts are open, including credit cards, mortgages, loans, and retail credit

How Much is Owed:

• How much is owed on each line of credit
• How much of the line of credit has been paid off
• How much of the line of credit is still outstanding
• The proportion of available credit to used credit
• How many accounts currently have an outstanding balance

New Credit Lines:

• How many accounts have been opened recently and how long it has been since these accounts where opened
• How many times a persons credit has been checked recently and how long it has been since the inquiries
• Whether new credit has been used in a positive manner, especially after periods of late or delinquent payments

Each of the above factors is considered by the Fair Isaacs Corp when they generate a persons credit score. Since there are so many different factors, it is very easy for a mistake on a credit report to result in a lower credit score, which is why it is so important to regularly check your credit score for errors.