Credit scores started as a valuable tool. In the 1950s, Bill Fair and Earl Isaac constructed a mathematical formula to help stores analyze consumer data. It caught on when Conrad Hilton (founder of Carte Blanche) and Montgomery Ward started using credit scores in the late 1950s and early ’60s. Banks then began to use them as a way to manage loans to their customers.
Today, FICO and other credit scores often misrepresent the ability of borrowers to pay back a loan, especially after the extraordinary events of the Great Recession. In addition, a consumer can pay all of his or her bills on time, but their credit score can still go down. Have too much credit? The score can go down. Have too much unused credit? The score can go down. Many times there seems to be a conspiracy between lenders and credit score companies to keep these scores low so higher interest rates can be charged to the consumer.
Credit scores are now being used as justification to deny small-business owners capital that their company may desperately need to grow. Some bank institutions want the owner to have the mythical 850 credit score in order to make the loan!
What can you do to help your score? Check it free at least once a year through www.annualcreditreport.com. There are also many services that will notify consumers every time their credit report is touched by anyone. If there are mistakes or discrepancies, write the three credit bureaus to get your report corrected or at least add an explanation. (credit barry moltz)