The History of Credit Reports – Creditor vs. Consumer
you ever wondered how the practice of using credit reports really
began? What kind of situation could have necessitated their
development? The history of credit reports didn’t start, of course,
until long after the establishment of the credit system itself. Here,
we’ll examine why and how credit reports were created.
The Establishment of Credit
first practice of consumer credit actually began way back in the 18th
century. The modern-day credit system, as we know it today, was
started by Western Union in 1914. Other large companies, like the
General Petroleum Corporation and Ford Motor Company, followed suit.
onslaught of World War II brought with it a ban on the use of credit.
However, as soon as the war ended, business began to boom, and the
desire for credit grew with it. More and more people wanted more and
more credit. They wanted to make bigger purchases – bigger items.
They wanted everything now – and wanted to pay for it later. So the
establishment of the credit system was well under way.
Who would keep the records?
the use of consumer credit grew, merchants recognized the need to share
information about customers so they could make wise credit decisions.
This need grew into the development of credit bureaus. The first credit bureaus
were non-profit cooperatives, owned by the merchants who participated
in them. As time went on, their thinking changed – confidentiality and
the quality of information they collected would be more advantageous
for them if they ran as separate entities, operating on a for-profit
basis. As of 1970, there were about 2,250 of these credit- reporting
companies scattered about in small cities all across the country.
until that time, these companies shared consumer information on a local
basis so, unfortunately, it helped them only with regard to local
consumers. But the number of records was manageable because the
customer base was small and the records were kept manually in
paper-based filing systems.
1970, large credit-granting companies like General Electric, Sears, and
the auto manufacturers began to automate their systems for maintaining
customer credit records. This allowed them to set up a limited number
of credit decision centers across the country. But that left the
credit bureaus behind. They had to add all this new credit information
to their records to keep them up-to-date. So they encouraged a move
towards consolidation into larger bureaus operating on a regional or
the use of credit exploded, the need for automation and centralized
credit reporting grew as well. Out of this need emerged three main
credit reporting systems: Equifax, Experian and Trans Union. Each of
these organizations now has many smaller, affiliated credit bureaus.
By 1998, there were 591 member credit bureaus in the U.S., selling 600
million credit reports annually.
The need for credit reports becomes crucial
might think that the banks were in on all this but, actually, they
didn’t join the credit bureau system until the late 1970s. That’s
because banking laws prohibited interstate banking, so they couldn’t
tie into the expanding credit bureau system until the laws were changed.
once the banks joined the system, the stakes were raised. The
potential effect of large loan losses on a company’s balance sheet, and
on the banking system in general, had become a great concern as
consumers accepted more and more debt. So the use of credit reports to
help the creditor make prudent lending decisions became absolutely
Legislation keeps the credit bureaus honest
credit bureaus began to organize themselves, government recognized the
need for laws to oversee this new industry. We’ll use the United
States as a model, but most countries have similar laws. Back in 1970,
the U.S. passed the Fair Credit Reporting Act (FCRA). This law allowed
consumers to access information about them that lenders, insurers, and
others obtain from credit bureaus. Amendments passed in 1996 provided
new consumer rights to improve accuracy of reports.
in 2003, Congress passed some changes to the FCRA that provided some
improvements for consumers. For example, they increased the accuracy
of credit reports, and they prevented identity theft. They also
restricted the marketing of financial products that used sensitive
information that was shared with affiliates. In addition the FCRA
amendments provided for one free credit report per year from each
agency and guaranteed consumers access to credit scores at a reasonable
The Creditor/Consumer relationship seesaws
Originally, credit reports
were created for the benefit of creditors. In the beginning, the
consumer just went along with the system. However, as time went on,
the consumer, backed by the government, forced the issue and gained
some encouraging ground. Errors on credit reports could drastically
affect someone’s life, in that they could be refused employment,
refused tenancy, refused credit, and generally be given a bad name in
the credit industry. So the consumer fought for access to their credit
as the system stands, the scales are much more balanced. Consumers
have more rights: to see their credit reports, to object to errors in
them, and a number of other positive outcomes. And for the credit
bureaus, more information could be collected, and they could sell that
information to marketers for extra profits.
it seems that both sides are content with the system. But each side,
the consumer and the credit bureau, is constantly jockeying for a
better position. So the relationship continues, back and forth. But
the bottom line for consumers is, as mentioned, credit reports can
deeply affect their lives. That’s why it’s so important to check your
credit report regularly – and have peace of mind.
About The Author
Gareth Marples is a successful freelance copywriter, one of experience and diversity. He provides valuable tips and advice for consumers purchasing credit monitoring service, pet life insurance and online payday loans. His numerous articles offer moneysaving tips and valuable insight on typically confusing topics.
This article on the "History of Credit Reports" is reprinted with permission.
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