To understand that, we've got to take a little trip in the Wayback Machine.

The practice of extending credit goes back about as far as money itself. The Bible refers to interest (usury) all the way back in the Old Testament, so we know credit has been around for awhile.

In the old days, credit was extended based on a person's apparent ability to repay--i.e., were they a productive craftsman or artisan? Nonpayment of debt was rare, as the penalties were rather severe, in terms of social stigma as well as more tangible punishment.

In preindustrial times, the vast majority of people were born, lived, and died in the same community or region. Thus, a person's reputation was known, and valued by that person. A creditor either knew about a person's trustworthiness, or could inquire easily enough. However, as railroads and especially automobiles became common, the population became increasingly mobile. More and more often, banks and other creditors did business with people from afar, individuals they did not know the history of.

Fortunately for them, a second invention would solve this problem: the computer. With the rise of mainframe computers in the Sixties and Seventies, and telecommunications networks, keeping track of an individual's credit history was made possible. The credit report was born. If a person failed to pay a debt, this could be reported to a company known as a credit reporting agency, which could then place the information in the consumer's credit report. The credit reporting agency made money and thus justified its existence by selling copies of the report to banks and others.

However, going over a credit report was a time-consuming task. As computers became more powerful and decentralized, the idea of taking a credit report, analyzing it, and coming up with a single number, or "score," to evaluate an individual by became practical.

In the 21st century, the Fair Isaac Company has come up with a formula that takes your credit report, analyzes it, and then generates a number that is designed to predict the likelihood you will be 90 days or more late on a financial obligation in the next two years. When you order your FICO score, you are authorizing your credit report to be analyzed and enabling Fair Isaac's computers to generate a score. Because of the ease with which a credit score can be generated, and the predictive power of a credit score in financial matters, more and more financial activities involve a credit score.