Let us go back to history, in the ’30s, ’40s and 50’s extending credit was a different game,  other methods were used to judge an individual and their creditworthiness. The officers at the bank used their own judgment to extend credit to individuals.  Therefore if someone “liked” you as an individual they can extend credit, and if they don’t “like” you, well we know how that goes.

Two men named Bill Fair ( An Engineer) and Earl Isaac ( A mathematician) came up with an idea to solve the credit problem. These two men were broke,  but they came up with this amazing idea. This was the birth of FICO, Fair Isaac Corporation.  It is difficult to imagine that this company was founded with just $800.00, today it collects an estimated amount of  $932.17 million in revenue.

 Most people think that the credit score system, or FICO, is based on the law rather than mathematics, here we have two mathematicians actually started the company. Mathematics play more of a role in the credit system than the law does, unfortunately most people don’t like mathematics and find it useless. There is mathematics in everything we do.

 Today most calculations are automated. The insurance companies use an identical system, Both insurance companies and banks have Actuaries, so they already calculated credit risk. There is also this notion of people thinking they can just spend and get away with it, which is not possible. 

The first step in “fixing” credit ( as some people may call it) is behavior change. What the credit score system revealed the most is the spending habits of people in different demographics. The second step I will say is account for your spending like an accountant.

This is what the credit system entails.

30% Amount owed

10% New Credit

15%  Length of Credit History

10 % Credit Mix

35% Payment History

People are more concerned about increasing their credit score instead of changing the spending habits, if we can change our spending habits, we can automatically increase or credit score. Don’t get me wrong FICO isn’t perfect,  I think the unfairness comes on the part of the companies that report individuals, this is the part where the legal system comes in but must be done with evidence which is not difficult to obtain if one is serious about their finances, but when one is mathematically inclined almost inevitably comes to the conclusion that something isn’t right, therefore might not need the law to help “fix” their credit.  WE need to take mathematics more seriously, all other things might be added. It is the back bone to everything!!!