Speaking of Credit

An insider’s view: How FICO scores burst from secrecy

Summary columnist and former FICO official Barry Paperno recounts how credit scores went public, and why they’re as confusing as ever

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The Consumer Financial Protection Bureau (CFPB) this month issued a report, “Consumer voices on credit reports and scores,” that summarizes the results of focus groups they conducted in an effort to examine the consumer experience of obtaining, understanding and making sense of credit reports and credit scores.

Along with summarizing many of the comments of consumers participating in these focus groups, the report also provided a highly revealing statistic into how infrequently consumers check their own Equifax, Experian and TransUnion credit reports: “The Bureau has estimated that 15.9 million credit-active adults receive a free credit report from one or more of the three largest national credit bureaus through each year, which means that roughly 90 percent of the eligible population does not take advantage of this free benefit in a given year.”

The majority of the CFPB report shares the focus group participants’ often-negative comments about their experience obtaining and understanding credit reports and scores, not just from the official site,, but also from credit card companies and other sites providing credit reports, scores and subscriptions to credit monitoring services. The concerns center around:

  • A lack of clarity as to the best way of accessing credit reports and scores.
  • The difficulty of navigating through different reporting formats that include nonrecognizable creditor names and inconsistent information across the reports.
  • The components of credit scores, and what differentiates a good score from a bad one.

Confusion? Difficulty? Lack of clarity? Sounds familiar to me.

These were some of the very same concerns my colleagues and I tackled as long ago as 1995 at Fair, Isaac & Company, now known as FICO, the company that invented and developed credit scores. Back then, credit scores were not available to consumers (unless shared by a lender, and even that violated the lender’s agreement with the credit bureaus and FICO).

Within the credit industry itself, when credit scores were being introduced, few people knew what made credit reports and scores tick or how they were used, let alone how to improve them. Almost all seemed to agree on one thing, however: If made readily available, consumers would find credit scores confusing and difficult to understand, due largely to the complexity of the scoring formula, and the constantly changing information they are based on, which causes scores to change frequently and often dramatically.

Credit bureau risk scores, as they were called early on to distinguish them from other types of credit scores, were first developed by FICO and introduced to lenders in 1989, but didn’t come into public prominence until 1995, when Fannie Mae and Freddie Mac essentially required that these scores be included in the approval criteria for loans they purchased in the secondary mortgage market.

Many banks had been quietly using what were becoming known as FICO scores for approving new credit card applications and managing account portfolios before 1995. Then virtually overnight, the mortgage lending industry not only adopted credit scores, but was faced with having to discuss them with borrowers when a score fell below the lending requirement threshold and answers needed to be found if the loan was to be approved.

What made these situations particularly awkward for all involved was that the credit reports provided with the scores often failed to include some of the underlying credit bureau information that could have helped indicate why the score was so low. In other words, the mortgage brokers and lenders were looking at what appeared to be a good credit report with a bad score that was preventing a mortgage from being approved — and with nowhere for the consumer, broker or lender to turn for help.

Yet, consumers, brokers and lenders were not the only ones landing in difficulty. I was in there, too. Over those first few years, frustrated and often irate borrowers, brokers and lenders seeking answers as to why someone with seemingly good credit would have a bad score, would turn to FICO. More often than not, they would reach none other than yours truly.

I was in a bind, too. While many of us at FICO knew how the scores were calculated or knew people who did, only the mortgage reporting companies and the credit bureaus had access to the scores and the credit information used to calculate them. And while knowledgeable when it came to credit reporting, the credit bureaus weren’t equipped to explain how the score was calculated from their data. So, here you had FICO knowing the scoring formula, but not having access to credit reports and scores, and the credit bureaus and mortgage reporting companies having access to the reports and scores, but not knowing how the scores work.

With a recipe for disaster like this brewing, something had to give. And give it finally did, in 2002, when the Internet mortgage lender, E-Loan, took the bold step of defying FICO and the credit bureaus by providing all of its borrowers with access to their own FICO scores. And the rest, as they say, is history.

With the genie out of the bottle, and with consumers and consumer advocates clamoring for access to credit scores, discussions among my fellow FICO colleagues that had, over the years, often begun with “If FICO scores are ever made available to consumers” had quickly become “When FICO scores are made available to consumers.” FICO and the bureaus finally began to wake up to the reality that consumers having access to scores was an idea whose time had come.

One year later, in 2001, in partnership with Equifax, FICO launched the website, which, along with, provided the first opportunity for all consumers to access their own FICO credit scores via the Internet. Within the next couple of years, TransUnion and Experian signed on with myFICO, followed in 2007 by the launch of the myFICO Forums online community, which brought consumers and their concerns about credit reports and scores into daily contact with the FICO scoring experts.

Still, looking back, I can’t help but feel that despite all the progress made over the past 20 years in giving consumers control of their personal finances in ways inconceivable when the Fair Credit Reporting Act was passed 45 years ago, this CFPB report validates some of what many of us within the credit industry knew all too well in the early days of credit scoring: Credit reports and scores are confusing and difficult to understand. And, to some degree, I’m afraid they always will be.

See related: There’s no quick credit score fix, How credit cards impact your credit score, Credit reports hold longer memory than issuers

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