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What lenders see -- : a history of the Fair Isaac scorecard


In the United States, a person's credit standing is determined by private enterprise through a numerical assessment of risk called a FICO® score. The basic technology behind this scoring system is a device called a `scorecard' which was designed by the operations research firm Fair Isaac & Company Incorporated (Fair Isaac) in the late-1950s. The scorecard is a prime illustration of how military-inspired practices were adapted to manage civilian enterprise in the post-war period. Drawing upon insights from social studies of science, technology and finance as well as from business history, this dissertation chronicles Fair Isaac's efforts to introduce computer-assisted statistical techniques for screening credit applications to department stores and finance companies. Instead of treating risk assessment as a set of universal technical standards, the research examines how Fair Isaac labored to build a commercially viable technology that would work in everyday business conditions. The research finds that Fair Isaac has repeatedly shifted its development criteria to respect socially, commercially, and politically imposed mandates. The empirical chapters cross-reference the recollections of former Fair Isaac employees with documentary evidence, and recapture four moments in a long-term process of problem solving and reengineering. In its first twenty years, Fair Isaac set up a process for manufacturing scorecards from paper records (Chapter 1); redesigned the technology so buyers did not bear the costs of implementation (Chapter 2); prepared customized products that reflected the unique policy structures of financial institutions (Chapter 3); and battled regulators over political definitions of discrimination (Chapter 4). Together, these stories demonstrate that risk assessment is not a simple substitute for assessing individual creditworthiness. The original scorecard was a piece of office equipment whose purpose was to mechanically reproduce a previous pattern of performance outcomes. The tool provided creditors with customized `operating information' that projected rates of default given the way each firm processed its credit cases. The dissertation concludes by discussing the relationship between privately -engineered systems of control, internal operating consistency, and the rise of financial predictability. It challenges the claim that FICO® scores evaluate the quality of individual consumers and offers an organizational understanding of consumer credit risk

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