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How Credit Use Has Changed over the Years

Credit scoring is one of the reasons why consumer credit absolutely exploded in the 1990s. Lenders felt more confident about making loans to wider groups of people because they had a more precise tool for measuring risk. Credit scoring also allowed them to make decisions faster, enabling them to make more loans. The result was an unprecedented rise in the amount of available consumer credit. Here are just a few examples of how available credit expanded during that time:

  • The total volume of consumer loans—credit cards, auto loans, and other nonmortgage debt—more than doubled between 1990 and 2000, to $1.7 trillion.
  • The amount of credit card debt outstanding rose nearly threefold between 1990 and 2002, from $173 billion to $661 billion.
  • Home equity lending soared from $261 billion in 1993 to more than $1 trillion ten years later.

Credit scoring got a huge boost in 1995. That’s when the country’s two biggest mortgage-finance agencies, Fannie Mae and Freddie Mac, recommended lenders use FICO credit scores, which is what Fair Isaac called its groundbreaking score. Because Fannie Mae and Freddie Mac purchase more than two-thirds of the mortgages made, their recommendations carry enormous weight in the home loan industry.

The recommendations are also what finally began to bring credit scoring to the public’s attention.

If you’ve ever applied for a mortgage, you know it’s a much more involved process than getting a credit card. When you apply for a credit card, you typically fill out a relatively brief form, submit it, and get your answer back quickly—sometimes within seconds, if you’re applying online or at a retail store. The process is highly automated, and there typically isn’t much personal contact.

Contrast that with a mortgage. Not only do you have to provide a lot more information about your finances, but getting a home loan also requires that you have ongoing personal contact with a loan officer or mortgage broker. You might be asked to clarify something in your application, be told to supply more information, or be given updates about how your request for funds is being received.

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