What's hidden behind your credit score?

By: Teo Popescu and Clare McGrane

1:30 p.m. on Wednesday, January 14, 2026

Your credit score is your economic destiny. It determines where you can live, what you can buy, and sometimes even what job you can get.

But how do credit bureaus come up with these all-encompassing numbers? And how did we end up with credit scores in the first place?

Follow along as we try to buy a hat in each of America's three major credit eras to see what data is collected and used to determine creditworthiness at different points in American history.

Prior to the American Civil War, most consumer credit was doled out at the individual level — a grocer would extend a line of credit to a local farmer before crops had been harvested. This system relied on personal relationships and communities with long histories together.

Following the American Civil War, many Americans moved to new parts of the country and new industries, making it impractical for local shopkeepers to rely on personal relationships when determining creditworthiness. Instead, a network of credit bureaus popped up — first at the business-to-business level, and eventually at the consumer level — that outsourced the work of gathering information on potential customers.

These reports were generally structured in three categories: character (your perceived moral character), capacity (your perceived ability to make an income), and capital (your perceived wealth).

This era lasted over 100 years, a period of time in which the process of collecting and analyzing consumer credit data became more advanced. By the 1960s, some credit reports included rating systems for missed payments and prediction models for repayment. However, the Three Cs model considered all personal data fair game, which continued to bias credit decisions based on race, gender, marital status, home ownership, religion, and more.

The invention of computers was a game changer for the credit industry. Suddenly, a long-hypothesized 'credit score' based on an algorithm was possible! This technological leap forward, coupled with new consumer protections from Congress that required credit bureaus to strip bias variables like race and gender from their reports, led to the creation of the first algorithmic credit score in 1989.

Unlike previous systems, credit scores are not set by an individual, but by an algorithm that feeds on regulated data. Today's system is described by credit historian Josh Lauer as the gold standard of algorithms due to its highly regulated data inputs. However, algorithms are not immune to human bias, especially in the case of 'proxy variables' as shown below.