This is incorrect.

in credit •  2 years ago 

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Credit scores in the US go back to the 1950s and 1960s. FICO at the national level was created in 1989. Credit reporting goes even further back to the 1800s in the US.

I don't think people think this through. Credit scoring increased access to credit. Before credit scores, banks would typically extend credit to individuals only after a thorough examination that often included looking at their income, job, and talking with their employer. Character-based credit assessments were more common. They'd take into consideration someone's dress, drinking habits, social standing, etc. These elements weren't necessarily tied to creditworthiness or default risk, and far from objective.

Perhaps most importantly credit scoring enabled banks to price credit risk. They didn't necessarily have to exclude riskier borrowers entirely. They could just adjust the terms of the credit for borrowers with lower scores. And they could extend credit to individuals they didn't have pre-existing relationships with as they could use the score as a proxy.

This isn't to say that credit scores are free from bias. Socioeconomic and racial gaps still exist in our society that can affect credit scoring models. But there was worse lending bias before them. Largely because lenders used more subjective means or simply didn't take the risk.

Also just my no-brainer advice for parents, make your child an authorized user on your credit cards. It will help them build a credit history. Length of accounts is a factor in credit scores and it will really help them early on when they get a credit card of their own or a car loan or rent an apartment as a young adult. Most issuers have pretty low age limits for authorized users, so even middle schoolers can become authorized users. You don't actually have to give the child access to the cards. Some issuers even allow you to lower the limit for specific authorized users.

And you can get secured credit cards or student specific credit cards with low limits. You don't even need to use the cards. Activity doesn't affect your credit score. Some cards may have inactivity rules, so in the worst case you may have to charge $1 every so often, but that's not always the case.

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